How to create an enabling environment for inclusive business?

How to create an enabling environment for inclusive business

Learning from experience and debates in private sector development

Business Environment Working Group

Melina Heinrich-Fernandes

October 2016

Acknowledgements

This paper was initiated by the Business Environment Working Group (BEWG) of the Donor Committee for Enterprise Development (DCED) It was written by Melina Heinrich-Fernandes Senior PSD Specialist at the DCED Secretariat Feedback is welcome and should be sent to the DCED Secretariat at CoordinatorEnterprise-Developmentorg The author is grateful for the support of a project Task Team which was made up of members from the Business Environment Working Group and other member agencies who provided advice documentation and contacts in particular Gayle Barnett (Global Affairs Canada) Mariella Regh Lisa Peterskovsky and Alexandra Oppermann (GIZ) and Siobhan Kelly Elena Ilie Marlo Rankin and Cora Dankers (FAO) Inputs were also received by Sahba Sobhani (UNDP) Fulvia Farinelli (UNCTAD) Iris Boutros (IDRC) Helen Bradbury (ALCP Georgia) and Pascale Bonzom and Tom Sales (UNDP AFIM) Thanks are also due to Jim Tanburn (DCED Secretariat) for comments and advice

The BEWG serves as a platform to share information and knowledge on donor-supported business environment reform in developing countries and to identify and support good practices and new approaches in this field For more publications by the BEWG visit httpwwwenterprise-developmentorgimplementing-psdbusiness-environment-reform About the DCED and current research on private sector engagement The DCED is the long-standing forum for donors foundations and UN agencies working in private sector development who share their practical experience and identify innovations and formulate guidance on effective practice Donors are now engaging directly with the private sector as partners in development This represents a major shift in mode of operation relative to the more traditional bilateral model DCED members are looking to the DCED to support them in making that shift not least by convening a group of donors around the topic of private sector engagement In addition to this scoping paper current research is also covering what we can learn from results measurement work in the Impact Investing Community how organisations are adapting to private sector engagement a mapping of partnership platforms that connect the public and private sector and how business structure and governance influences social impact Disclaimer The views in this paper are the authorrsquos or derived from secondary and tertiary sources and are not necessarily endorsed by the Donor Committee for Enterprise Development or any of its members

Front page photo credits (in order of images)

Duybox 123rfcom Paul Prescott 123rfcom DrikKatalyst

Public-domain-imagecom Russell Watkins Department for International Development flickrcom

Table of Contents

Executive Summary

Introduction

1 Defining inclusive business and the business enabling environment for private

sector development practitioners

11 Inclusive Business

12 Functional areas of business environment reform and wider government strategies

13 A practical framework of the enabling environment for inclusive business

2 What does it take to create an enabling environment for inclusive business

Debates on effective practice and lessons from experience

A Debates and lessons on functional areas of business environment reform

21 Are constraints and solutions in the functional areas of the business environment

different for inclusive business ndash compared to any other business

22 What is the role of new regulation and de-regulation in creating an enabling

environment for inclusive business

23 Are legislation on special corporate forms or voluntary accreditation systems

instrumental in promoting inclusive business

B Debates and lessons on interventionist government strategies

24 What is the appropriate level of selective government intervention vis-a vis inclusive

business

25 Should targeted support strategies prioritise criteria of social impact or productive

growth

26 Are mandatory rules or preferential criteria on inclusiveness effective means to

promote pro-poor growth

C Cross-cutting issues and conclusion What types of programmes are best suited to

identify and support business environment reform for inclusive business

Annex 1 Summary tables Reform and policy options identified that benefit inclusive

business and implications for further research

Executive Summary Inclusive business support is a growing priority for

many donor and development agencies but views

on the most effective support options vary This

scoping paper focuses on business environment

reform How can agencies help create an

enabling environment for inclusive business in

partner countries And how if at all does this

differ from regulatory and policy reform to

facilitate private investment in general In order

to help answer these questions this paper

summarises a very large body of emerging

evidence structuring it into key debates for

further exploration

While many reform options appear in the inclusive

business literature the aim is to incorporate and

structure lessons from other communities of

practice in private sector development (PSD) as

well Even though these communities may not

always use the lsquoinclusive businessrsquo terminology

they typically share the objective of enhancing

businesses that are pro-poor and have

accumulated long-standing experience in a

variety of strategies to achieve this Taking such a

global perspective on policy options for inclusive

business not only serves to identify trades-off

mixed evidence and opposing views on lsquobest

practicersquo that practitioners may face and should

be aware of it also serves to identify practical

lessons learnt and synergies between different

approaches The ultimate objective is twofold

informing and enhancing programming decisions

and stimulating nuanced and evidence-based

high-level policy discussions such as within the

G20 Platform on Inclusive Business As an

umbrella organisation for private sector

development approaches the Donor Committee

for Enterprise Development (DCED) is uniquely

placed to achieve these objectives it acts as a

neutral knowledge broker and does not promote

any agenda or approach in particular

Hgjhgjhg

Jhkjhkh

kjkhkjhkjh

Clarifying key concepts Business environment

reform and inclusive business

As a basis for reviewing reform options it is

necessary to unpack the key concepts underlying

this paper starting with inclusive business There

is still some disagreement as to how inclusive

business models can be clearly distinguished

from others While inclusive business is generally

seen to benefit the poor as clients suppliers

distributors employees or producers various

other defining criteria are still debated These

include

bull what types of organisations (eg for-profit or

non-profit organisations) can be considered

as inclusive business or using inclusive

business models

bull how central the lsquoinclusiversquo activity has to be

to core business

bull whether there are any quantitative or

qualitative threshold criteria for inclusiveness

(eg targeting a minimum number of poor

people benefitting a certain share of poor

people as part of the total target group or

achieving minimum improvements in

incomes or access to service of the poor)

bull whether inclusiveness has to be a conscious

business intention and priority and

bull if inclusive businesses need to achieve more

than direct benefits for the poor eg

environmental sustainability

For the purpose of this paper the following

definition of inclusive business is chosen Private

sector companies with business models or

activities that pursue commercial viability and

that have (or are likely to have) significant

economic andor social benefits for poor people

in their value chains Similarly where the term

lsquoinclusive growthrsquo is used this refers to

sustainable economic development which

provides increasing opportunities for the poor to

benefit from improved access to products and

services andor productive income and

employment

Broadly speaking the business environment is

defined by a range of context-specific factors that

affect business activities - and that are set or

shaped in many ways by governments However

rather than looking at government policies as a

straightforward suite of options it is useful to

differentiate areas of activity which require

different sets of expertise and are underpinned

by distinct lsquophilosophiesrsquo about good practice

The Business Environment Working Group of the

Donor Committee for Enterprise Development

(DCED) has defined ten functional areas of

business environment reform These are measures

to reduce cost and risk for all businesses and to

increase competitive pressures through new

entry (eg making it easier to register obtain

licences pay taxes or access finance)

The inclusive business literature frequently refers

to additional measures which can be described as

wider government policies and strategies These

include overarching policy and institutional

frameworks (eg competition policy) ndash which

resonate with the principles of functional

business environment reform and different

types of lsquointerventionistrsquo measures which instead

favour certain businesses activities or sectors

over others (eg targeted subsidies)

Seven key issues and debates ndash and an in-depth

review of practical examples

These concepts provide the basis for framing

discussions and practical experiences on how to

create an enabling environment for inclusive

business Scoping the literature suggests that

there are seven key questions and debates

regarding policy-level barriers and solutions for

inclusive business While the wide range of

potential inclusive business sectors and activities

mean that evidence cannot be exhaustively

reviewed academic and practitioner publications

reveal a substantial amount of practical

examples evidence lessons learnt and concrete

programming advice which are systematically

integrated into the discussion of each question

A Functional areas of business environment

reform

The first three questions and debates relate to

functional areas of business environment reform

and wider policies with similar objectives

1 First are key constraints and solutions in the

functional areas of business environment different

for inclusive business compared to any other

business An analysis of practical experiences in

each area reveals that most elements reforms as

currently implemented can be expected to make

it easier to lsquodo businessrsquo in general and therefore

also benefit inclusive business Examples include

regulatory changes to improve access to credit

land titling and leasehold reform streamlining

tax requirements or making it easier to advocate

for reform through public-private dialogue

There are two important qualifications

bull Some reform areas seem to be particularly

relevant for inclusive business and thus

warrant special policy attention For

example inappropriate or missing quality

standards can represent a binding constraint

to introducing or scaling inclusive

technologies or services Public-private

dialogue to advocate for reform can be highly

beneficial especially if inclusive business

depends on substantial reform of

government-controlled sectors or there is a

need to raise government awareness of

specific inclusive business constraints

bull Secondly typical reform packages are not

always sufficient to create enabling

conditions for inclusive business Even where

licensing regimes are streamlined and

improved they may not cater to highly

innovative operational models in particular

in sectors that may allow only limited private

sector participation in the first place (eg

energy or health) Work at sector-level or

with individual businesses will often be

required to identify such constraints Another

example is the need for specific legislation

that allows inclusive business to access new

forms of finance (eg impact investment) or

to act as providers of finance to the poor

(eg mobile and agent banking regulations)

2 Common policy prescriptions include sector-

wide de-regulation and removal of inhibitory laws

as well as new rules and regulations How may

these be prioritised or sequenced for inclusive

business development Experience suggests that

such priorities are highly specific to context the

structure of target sectors and the nature or

stage of the inclusive business model At the

macro level an initial step is to improve

overarching institutional frameworks for private

investment and innovation with elements of both

liberalisation and new regulation (eg opening

sectors to foreign investment and issuing

supporting legislation developing competition

policy frameworks) Allowing pioneer businesses

to enter specific sectors with inclusive growth

potential (eg agriculture health electricity) very

frequently requires prioritising de-regulation of

government-controlled systems or removal of

other overly stringent regulations stifling market

entry The growth and sustainability of inclusive

market entrants then often requires new

regulatory initiatives ndash to protect consumers or

to ensure fair prices for instance While enabling

inclusive business in least developed countries is

likely to require work at all levels at the same

time programmes in other developing

economies may be able to focus more on sector-

and business-specific reforms for inclusive

business development and growth

Overall regulation is multi-dimensional and

complex and will need to change over time As

such there are few regulatory choices that

always work For example governments may

need to restrict competition temporarily and

where necessary to help innovative businesses

re-coup their upfront investment Similarly

trademark protection can stifle or encourage

inclusive business depending on the context and

level of development

3 In the context of new regulatory frameworks

several inclusive business advocates argue in

favour of creating special legal forms in

corporate law for business or voluntary

lsquoaccreditationrsquo systems Are these measures

an effective way to promote inclusive

business Evidence is still lacking on the

effectiveness of this policy tool and views

vary on whether special statutory forms can

make it any easier to defend inclusive

business activities internally or to

shareholders or whether they make it easier

to attract government donor or investor

support compared to alternative policy

options A separate DCED briefing note on

corporate structures and governance and

how they affect social impact explores this

question in more detail

B Wider government policies and strategies

While regulatory reform appears to have a central

role for inclusive business development various

examples demonstrate the need of

complementary measures More generally many

communities of practice in PSD would argue that

regulatory reform is necessary but not sufficient

to achieve inclusive growth The inclusive

business literature is rich in references to

industry- or firm-specific government measures

such as subsidies tax waivers or preferential

public procurement

4 The question of the appropriate level and type

of selective government interventions is however

one of the most hotly debated ones in PSD In

particular there is potential for tensions between

interventionist approaches and typical business

environment reforms which are competitively

neutral Many consider targeted support to

sectors and business as essential to development

but for others it is prone to government failure

and mismanagement In practice experience

shows that badly targeted or managed

government subsidies can act as a barrier to long-

term inclusive growth while some well-designed

and -monitored incentives to productive sectors

or business can be highly effective policy tools

A key implication is that inclusive business

programmes can learn from research on the risks

and opportunities of industrial strategy but so far

interaction between these communities has been

limited In particular in line with DCED guidance

on this issue strategic or lsquohorizontalrsquo industrial

strategy and business environment reform can be

compatible and mutually reinforcing Lessons

from strategic industrial policy include the

importance of a clear economic rationale for any

subsidies soliciting policy feedback through

public-private dialogue making support time-

bound and dependent on results and favouring

sub-sectoral activities over individual firms A

detailed list of suitable types of support is

included in the main text

5 Among interventionist strategies traditional

approaches to industrial strategy have focused on

allocating and managing incentives based on the

economic performance of firms (eg productivity

or export growth) In many emerging and

industrialised economies these approaches have

been an effective means to lift people out of

poverty in particular by creating direct

employment opportunities for the poor Some in

the inclusive business community now suggest a

different approach to industrial strategy whereby

government incentives would be awarded and

managed primarily based on social impact One

example of an initiative to achieve this is the

inclusive business accreditation system in the

Philippines

Based on experience should inclusive growth

programmes focus on the economic performance

or social impact of businesses as the main

criterion for support While it is unclear whether

strategies prioritising social impact would replace

or simply complement other industrial strategies

it is a legitimate question how governments can

deploy resources in the most strategic way for

poverty reduction Some researchers suggest

that using social impact as the main criterion for

targeted incentives could actually reduce

aggregate productivity and thus undermine

inclusive growth prospects There are however

programming options that could avoid such

trades-off and meet both social and economic

objectives in a scalable way These include

bull Supporting governments in nurturing sectors

with high productive growth potential which

are also labour-intensive and managing

support based on economic performance

bull Promoting decent working conditions and

labour standards in these sectors

bull supporting sectoral regulatory reform to

make it easier for businesses to invest in

labour-intensive manufacturing and

productivity enhancing practices in

agriculture and

bull complementing existing industrial strategies

with sectoral support programmes to

increase backward linkages between the

beneficiaries of state incentives and local

suppliers or intermediaries that involve the

poor in their work

6 Specific interventionist strategies which receive

a fair amount of attention in the inclusive business

literature are mandatory rules and preferential

contracting criteria on inclusiveness Can these be

considered as an effective means to promote pro-

poor growth Evidence suggests that mandatory

inclusion rules for example local sourcing

requirements for supermarkets should be

avoided as they tend to work against private

incentives raise the cost of doing business and

donrsquot yield the desired effects Alternative

approaches including market-based solutions

(eg access to information about small suppliers)

are likely to yield better results While the role of

preferential public procurement for inclusive

business is unclear there is some evidence on a

positive impact of government contracts on firm

growth (including outside government) and new

hires from the informal sector

C Cross-cutting issues

7 Based on the options for business environment

reform identified what role can different types of

PSD programmes play in promoting favourable

conditions for inclusive business It seems that

different programmes have different

comparative advantages in creating an enabling


Donor-funded advisory and advocacy programmes

engaging directly with government are particularly

suitable to address cross-sectoral or other

fundamental constraints to private investment

including inclusive business Within such

programmes it is often possible to follow

established good practices and experiences

elsewhere to help design new regulatory and

policy frameworks for partner governments In

addition successful examples industry-led

advocacy alliances suggest that these are a useful

option to address widely known inclusive growth

constraints at sectoral level

Approaches starting at the level of markets and

sectors such as market systems development

programmes are particularly suited to address

policy and regulatory constraints for inclusive

business models that are not usually covered in

national reform packages or that are outside their

scope due to the innovative approach of the

business There are two important reasons for

this First the bottom-up approach of market

development programmes which starts with a

thorough analysis of sectoral constraints to

inclusive growth allows such programmes to

spot sector- and innovation-specific business

environment barriers Second these

programmes typically pursue a variety of

interventions at the same time (eg supporting

regulatory reform to enable direct sales from

fertiliser companies to farmers but also

supporting companies to train farmers in how to

the use of fertiliser) many examples illustrate

that this multi-level approach is critical for

inclusive business development

While business environment reform is not

typically within their mandate some partnership

funds and facilities have grasped opportunities to

help individual partner businesses engage at the

policy level in order to address binding constraints

to their business model Partnership funds and

facilities are more likely to play such a role if they

have a strong focus on innovation and if they

have in-country staff to facilitate such efforts In

these cases such programmes could play a more

prominent role in flagging issues and facilitating

reforms which ware not on the radar of other

donor-funded initiatives Where staff capacity is

too limited partnership facilities could become

more strategic about collaborations with other

PSD programmes to address business

environment reform needs

Regardless of the approach chosen one useful

transferable lesson from business environment

programmes is the importance of analysing and

navigating political economy factors that influence

reform programmes that ignore such factors

have often failed Yet political economy issues

have not received much attention in the inclusive

business community so far In practice there can

be strong disincentives among both government

and inclusive business to engage in certain

reform efforts ndash for instance if they imply a

withdrawal from subsidies from incumbent

enterprises (state-owned or private) or

encourage market entry of competitors

Incorporating existing advice on political

economy analysis and reform management by

the DCED and others into inclusive business

programmes could therefore be instrumental in

anticipating such constraints generating reform

buy-in or informing a change of partners in the

reform process

Overall this paper shows that the enabling

environment for inclusive business is a complex

topic that cannot easily be addressed based on

generic guidance and checklists

bull While many regulatory reforms and

government policies to stimulate private

investment are likely to benefit inclusive

business as well the market entry and scaling

up of innovative inclusive business models

will often require tailor-made government

responses based on an assessment of the

target sector and the needs of individual

businesses

bull Improved exchange of lessons learnt

between the inclusive business community

and other groups such as business

environment reform market systems or

industrial policy practitioners could inform

the choice of the most effective government

responses

The reform and policy options identified in this

paper as well as suggestions of further research

are included in a summary table in Annex 1

Next steps

As part of its mandate to learn about the most

effective ways of promoting economic

opportunities for the poor the DCED is keen to

further advance practical knowledge exchange on

the key questions identified in this paper As a

possible way forward the DCED will explore

member interest in organising a debate event in

2017 with donors researchers and practitioners

Introduction The potential role of inclusive business as a

lsquodriving force for inclusion and sustainability and

to contribute to the effective implementation of

the Sustainable Development Goalsrsquo1 is now a

major focus of attention of donor and

development agencies As pointed out by the G20

Development Working Group on Inclusive

Business donor governments can play a critical

catalysing role by ldquoenabling inclusive business

through [appropriate] policies approaches and

good practicesrdquo2 ndash and there is a strong drive to

find out what these practices should and should

not consist of Within the Donor Committee for

Enterprise Development (DCED)3 the Business

Environment Working Group is particularly

interested in learning how a countryrsquos business

environment can be improved in order to allow

inclusive businesses to start up and grow

What is already known ndash based on feedback from

inclusive businesses themselves ndash is that the

enabling environment can critically influence their

engagement with low-income markets In 2012

Accenture surveyed 56 Australian companies

working to alleviate poverty overseas through

commercial approaches 43 named effective

regulation as a crucial factor in their success4 Citi

Foundation (2014) surveyed 40 large companies

active in 8 regions across the world and found

that ldquoa complicated regulatory or policy

environmentrdquo is one of the most frequently cited

barriers to adopting inclusive business models5

1 G20 Inclusive Business Framework (2015) p20 2 Ibid 3 The DCED is the forum for 22 bilateral donors UN agencies and one private foundation for learning from experience about what works and what doesnrsquot in creating sustainable economic opportunities at scale for the poor through the private sector Its website at wwwEnterprise-Developmentorg is also a leading source of knowledge on private sector development and engagement 4 Accenture (2012) Business in Development Study 5 Citi Foundation et al (2014) Growth for Good or Good for Growth How Sustainable and Inclusive Activities are Changing Business and Why Companies Arenrsquot Changing Enough

More specifically Koh et al (2014) who surveyed

37 businesses serving the poor in Asia Africa and

Latin America found that at least half of them

felt constrained by the following three business

environment issues

bull Inhibitory laws regulations and procedures

(65)

bull absent ineffective standards (63)

bull inhibitory taxes and subsidies (49 )6

What is less known is In what way if at all do

these constraints differ from those faced by other

businesses in developing countries Answering

this question is a core interest of many agencies

working in private sector development (PSD)

While a growing amount of research is coming

out on this issue7 there are still conceptual and

practical challenges in choosing policy

instruments that specifically help to create an

enabling environment for inclusive business Why

is this so

For a start there seem to be a variety of views

within the inclusive business literature on what

counts as an inclusive business or what exactly the

business environment consists of This makes it

difficult to extract consistent and systematic

lessons on effective approaches

Another limitation is that practical examples of

business environment reform for inclusive

business are quite dispersed and often anecdotal

Part of the reason for is that many flagship

programmes on inclusive business typically donrsquot

have an explicit or strong focus on business

environment reform Instead well known

inclusive business initiatives focus on

bull lsquosoftrsquo incentives for individual inclusive

businesses such as peer learning networking

and high-visibility recognition (eg G20

6 Koh et al (2014) Beyond the Pioneer Getting Inclusive Industries to Scale 7 Notably by BMZ GIZ UNDP the G20 Development Working Group IFC Endeva and The Practitioner Hub for Inclusive Business among other organisations

2

Challenge on Inclusive Business Innovation

Business Call to Action)

bull technical advice to inclusive business models

either as directly as part of application-based

facilities or value chain development

programmes or through a service offering

linkages with advisory service providers (eg

Business Innovation Facility pilot and the

Business Innovation Facility UNDP Inclusive

Market Development initiatives Inclusive

Business Accelerator)

bull access to finance for inclusive business

either through direct support or by linking up

businesses with suitable investors (eg IFC

Inclusive Business Bonds Inclusive Business

Accelerator) andor

bull global or national-level advocacy dialogue or

knowledge sharing about the value of

inclusive business in general (eg UNDP

Growing Inclusive Markets Initiative and

African Facility for Inclusive Markets)

As a result it has been difficult so far to draw

systematic evidence-based lessons from these

programmes on how to promote business

environment reform for inclusive business

A compounding factor is that much of the

inclusive business literature has so far been

somewhat disconnected from the language

approaches and debates influencing other

communities of practice in PSD This includes

business environment reform ndash a community

which like others has a long-standing record in

defining this field of work and learning from

experience about lsquowhat worksrsquo Exploring lessons

learnt by other PSD practitioner groups could

therefore provide a constructive avenue for

identifying relevant policy options and synergies

between different approaches

This scoping paper has been initiated by members

of the DCED Business Environment Working Group

to address these issues Specifically the paper

aims to add value to existing literature by

1 Framing the topic for PSD practitioners Based

on a review of existing definitions the first

section will propose concepts of inclusive

business and the business environment that

are practical and relevant for programmes

promoting economic opportunities for the

poor through the private sector

2 Providing an accessible synthesis of

experiences debates and practical

implications for programming In an effort to

link different strands of the inclusive business

literature with different communities of

practice in PSD the main part of the paper

will then explore areas of consensus and

debates on what an appropriate business

environment for inclusive business is and

how it can be achieved in practice In doing

so the section will summarise and signpost

academic evidence and actual experiences of

inclusive businesses and programmes that

support them (including those that are not

explicitly labelled as lsquoInclusive Businessrsquo

initiatives)

3

1 Defining inclusive business and the business enabling

environment for private sector development practitioners


Creating economic opportunities for the poor in

developing countries through the private sector

has been a priority for many donor and

development agencies for decades While views

on the exact reasons for the growing focus on

lsquoinclusive businessrsquo support in particular vary

three key factors can be pointed out

(1) Seminal research papers highlighting

business opportunities at the bottom of the

pyramid have gained traction with the

development and business community alike8

(2) International companies have discovered the

importance of low-income markets for their

long-term business strategy ndash to diversify

their supply chains establish themselves

among the first-movers in emerging

economies and to appeal to responsible

consumers in the developed world

(3) Thirdly as a result of their search for

sustainable and scalable solutions to poverty

as well as shrinking aid budgets donor

agencies have increasingly turned to the

private sector as a partner (and not just

recipient) in development cooperation The

2030 Agenda for Sustainable Development

confirms this by stating that ldquoprivate business

activity investment and innovation are major

drivers of productivity inclusive economic

growth and job creationrdquo and calling on all

businesses to help solve sustainable

development challenges9

Working with and through business in

development cooperation requires donor

agencies to define what the right kinds of partners

in the private sector are they have to

8 Eg Prahalad and Hartrsquos book ldquoThe fortune at the bottom of the pyramidrdquo (2002) 9 Transforming our world the 2030 Agenda for Sustainable Development

be worthy of public support by delivering

sustainable results for the poor and not posing

any major developmental and reputational risks

While donors have generally been rather specific

in defining exclusion criteria to avoid partnering

with unethical business it seems that agreeing

on a positive concept ndash that of lsquoinclusive

businessrsquo ndash has been more challenging so far As

noted by Bauer (2016)

ldquothere is still a lot of confusion about

what [inclusive business] is how it

addresses the poor and how it worksrdquo10

It is widely agreed that a defining feature of all

inclusive businesses is their impact on the poor

ldquorsquo(They) tangibly expand opportunities

for people at the base of the economic

pyramid (BoP) [by engaging them] (hellip) as

producers suppliers workers

distributors or consumersrdquo11

There are however many nuances in existing

definitions and these can have important

implications on how donor support is designed

and targeted

The institutional nature and mission of inclusive

business

One important nuance concerns the types of

entities considered as inclusive business

According to the predominant view inclusive

business refers to a ldquoprofitable core business

activityrdquo12 of a private company with the

commercial motivation being fundamental ldquoto

ensure that business involvement in enabling

sustainable livelihoods is both scalable and

replicablerdquo13 Others however also consider

10 Armin Bauer (2016) Clarity matters in Inclusive Business Blog post on The Practioner Hub for Inclusive Business 11 Practitioner Hub for Inclusive Business What is Inclusive Business 12 Eg The Practitioner Hub for Inclusive Business 13 WBCSD website

4

ldquonot-for-profit organizations that use business

approachesrdquo14 or social enterprises re-investing

their profits as forms of inclusive business Some

even stress that the institutional background ldquois

insignificant for the approach per serdquo which can

develop at the initiative of for-profit non-profit

or even public actors15

Without discounting the developmental value of

such approaches it is important to recognise that

different types of institutions face different types

of opportunities and constraints16 Given that this

scoping paper takes a particular interest in ways

to generate commercially sustainable economic

opportunities for the poor it will focus on

business environment constraints to profitable

core business operations of privately owned

entities Indeed the term lsquoinclusive businessrsquo is

already quite clear in its focus on business rather

than other organisations or activities

Centrality of inclusive business line(s) to the

company

In addition to distinguishing social enterprises and

for-profit inclusive businesses the G20 Inclusive

Business Framework adds another important

qualification how central inclusive business is to

the company overall In total it proposes three

inclusive business categories

bull Inclusive business models which integrate the

poor across their core business operations

and seek to achieve commercial viability

typically expecting market rates of return

bull Inclusive business activities which also include

poor people into a companyrsquos value chains

but are not central to the commercial viability

of the company nor do poor customers

producers or employees represent a major

part of their business companies sometimes

14 Eg Growing Inclusive Markets (nd) MDG Report 15 UNDP (2010) Brokering Inclusive Business Models p9 Similarly GIZ (2014) notes that ldquomany NGOs are also increasingly using IB models to secure social improvements for their target groups in a financially sustainable mannerrdquo and that IB models are potential tools for both the private sector and NGOsrdquo 16 See also UNDP (2010)

expect such activities to achieve market rate

of returns but often accept below-market

returns and

bull Social enterprise initiatives which primarily

pursue improvements in the economic and

social well-being of the poor and reinvest

most profits into the enterprise some social

enterprises receive external support and

would not be financially viable without it17

How CSR and shared value initiative fit in the

picture

Bauer (2016) suggests two further (sub-) sets of

initiatives18 ndash which he does not consider as

inclusive business

bull Corporate Social Responsibility (CSR)

initiatives ie projects that are separated

from the core business of a company and not

expected to yield commercial returns or

large-scale benefits for the poor in some

cases they however be used to test and

develop new core business model that will be

central to the companyrsquos commercial

strategy in the long run and

bull Shared value initiatives which according to

Bauer extend business lines to low-income

populations through small adaptations but

without ldquobuilding innovations from an

understanding of the poorrsquos problemsrdquo or

providing ldquoa systemic solutionrdquo19

Others however see lsquoshared valuersquo as synonymous

or integral to inclusive business According to RIB

Asia (2015) for example shared value initiatives

ldquoaddress social needs in a way that is

commercially viablerdquo and successful inclusive

business strategies create shared value20

In line with a focus on sustainable economic

development this paper will focus on measures to

support companies in the first two categories of

17 G20 (2015) Inclusive Business Framework 18 Armin Bauer (2016) 19 Ibid 20 RIB Asia (2015) Creating Shared Value through Inclusive Business Strategies

5

the G20 frameworkndash the ones that pursue

inclusive business models or inclusive business

activities especially those that can be expected

to generate market returns in the medium to

long term This can include initiatives labelled as

lsquoshared valuersquo if they are similarly defined

Dividing lines between lsquoinclusiversquo and lsquonon-

inclusiversquo

A final important question is how exactly to draw

the line between lsquoinclusiversquo and other business

operations in developing countries21 In fact

ldquovirtually any business can help a country

develop whether through taxes employment

market expansion or technology transferrdquo Yet

inclusive business is generally considered to ldquogo

furtherrdquo22 and beyond ldquobusiness as usualrdquo23

What this means in practice is not always clear

Some stress that ldquonot even all companies

engaging the poor are inclusive [as they] not

create systemic impact on their living

conditionsrdquo24 There is also no consensus about

the need for any quantitative or qualitative

threshold criteria for inclusiveness Do businesses

have to reach a minimum number of poor people

or a specific percentage of poor people among

total beneficiaries Could an oil company count

as inclusive The poor often rely on petrol diesel

andor paraffin for their livelihoods

An attempt to quantify the difference between

lsquoinclusiversquo and lsquonon-inclusiversquo is made by Rogerson

et al (2013)25 they consider a business as lsquosocialrsquo

if they have a target group of more than 1000

people that include at least the same share of

poor people as the surrounding region and

improve product access or incomes for the poor

by at least one-third as compared with

21 See for example Elise Wach (2012) Measuring the lsquoInclusivityrsquo of Inclusive Business IDS 22 Business Innovation Facility (2011) Briefing Note What is Inclusive Business 23 Armin Bauer (2016) 24 Ibid 25 Andrew Rogerson et al (2013) Mixing business and social What is a social enterprise and how can we recognise one ODI

alternative products or income sources26 Any

such threshold would however make the concept

of inclusive business quite static and imply that

many small or medium sized enterprises could

not qualify as inclusive Grytz and Bauer (2016)

meanwhile claim that inclusive business models

need to be consciously designed to ldquogenerate

decent income opportunities with higher returns

for the poor than the market rate or provide

relevant and affordable services and products

that address their social needsrdquo27

Business drivers as a defining feature Targeting

of the poor versus commercial opportunities

The requirement of lsquoconscious designrsquo as a

defining feature of inclusive business is however

questionable as many business models with

significant benefits for the poor in their value

chain have been designed first and foremost with

a commercial objective in mind

bull There are numerous examples of this from

partnership or market development

programmes where partner companies have

spotted a business opportunity and receive

donor support because this opportunity also

involves significant benefits for the poor Yet

poverty reduction was not a primary

motivation for the business For example a

hardware company in Fiji supported by a

donor programme considered that importing

higher quality and more varieties of seeds

than available locally would be a

commercially promising new business line In

effect though selling such seeds at

affordable prices to small farmers will have

positive impacts on their yields and income

implying that the business model is

inclusive28

bull Other business models have only evolved

into a pro-poor solution over time For

26 See also DCED (2014a) Private Sector Development Synthesis Note Current Debates on Inclusive Business 27 Mareike Grytz (2016) What role does government play in inclusive business in Asia Blog post on the Practitioner Hub for Inclusive Business 28 See the example of KK Hardware supported by the Market Development Facility here and here

6

example when mobile networks where

initially set up in Africa they primarily served

the middle and upper classes however

when prices of mobile phone telephony went

down a few years later it became widely

accessible to poor populations ndash with

significant benefits to their ability to access

markets and achieve better prices and laying

the basis for further pro-poor innovations

such as mobile banking29

Hence it is at least debatable whether or not a

conscious prioritisation of pro-poor impacts is

always appropriate to define an inclusive business

In addition many companies may even

consciously include the poor in their business

without actually considering themselves as

inclusive businesses30 Other defining criteria are

also being discussed FAO for instance lists

flexible trading arrangements (eg cash on

delivery) skills development and support to

producersrsquo collective bargaining among others

as defining criteria of inclusive business For

some authors inclusive business also need to

have positive environmental impact while others

note the tensions between helping poor

consumers and environmental impact such as

increased waste from products in small

packages31

Connecting the dots Definition of inclusive

business used in this paper

It is however beyond the scope of this paper ndash and

the current capacity of many PSD programmes ndash

to develop such a detailed picture of a companiesrsquo

actual or potential lsquoinclusivenessrsquo Based on the

discussion above this paper will define inclusive

business as follows

Sfsd

Sdfs

sdfs

29 FAO (2015) Inclusive Business Models Guidelines for improving linkages between producer groups and buyers of agricultural produce 30 GIZ (2013) Inclusive business models Options for support through PSD programmes 31 Ibid

Privately owned companies with business

models or activities that pursue

commercial viability and that have (or are

likely to have) significant economic andor

social benefits for poor people in their

value chains

kjhkjhkj

12 Functional Areas of Business Environment

Reform and Wider Government Strategies

In its broadest sense the business environment is

a range of context-specific factors that have an

impact on business activity ndash and that are set or

shaped in many ways by domestic governments

Yet most inclusive business publications do not

explicitly define what exactly the business

environment is or isnrsquot instead many authors list

different sets of policies and conditions that can

act as barriers or enablers of inclusive business

Views on the business environment from flagship

inclusive business publications

Endeva (2013) set out four types of government

tools to support inclusive business which have

also been adopted as part of the G20 Inclusive

Business Framework Each of these tools can be

implemented with facilitative or lsquoenablingrsquo

measures more interventionist or lsquoencouragingrsquo

instruments or by lsquoempoweringrsquo poor people to

engage with companies They include

bull Providing information

bull Setting rules

bull Giving access to financial resources and

bull Building infrastructure and capacity32

UNDP (2013)33 proposes similar categories that

make up the lsquoecosystemrsquo for inclusive business

including information incentives financial

investment and implementation support

GIZ (2014) names infrastructure knowledge and

skills among the poor as well as regulatory and

32 Endeva (2013a) Inclusive Business Policies How Governments can engage companies in meeting development goals BMZ 33 UNDP (2013) Realizing Africarsquos Wealth Building Inclusive Businesses for Shared Prosperity

Incl

usi

ve B

usi

nes

s

Def

init

ion

7

legal environments among some of the key factors

influencing inclusive business operations34 The

report also specifies a range of measures at

policy level that can create the conditions for

inclusive business to thrive including

bull Building innovation systems that facilitate

exchanges between academia the private

sector and responsible government actors for


bull Devising adequate protection policies for

poor consumers in particular in sectors that

have been deregulated in order to allow

greater participation of inclusive business

(water health education energy)

bull Implementing a smart competition policy to

enable market entry of innovative business

bull Implementing fiscal and other redistributive

measures eg through preferential public

procurement or subsidies and

bull Developing a conducive regulatory

environment in particular at sector level

This brief review of selected inclusive business

reports gives just a taste of the wide range of

government approaches proposed for creating an

enabling environment for inclusive business

Interestingly though policy prescriptions donrsquot

typically consider important trades-off and

opposing views on lsquobest practicersquo that often

underlie these different approaches There is also

a need to structure approaches in order to

review evidence on results and to narrow down

effective policy options for practitioners It is

therefore useful to look at how PSD practitioners

active in business environment reform define

this field of work As a result of extensive

consultations the DCEDrsquos Business Environment

Working Group has developed Practical Guidance

on Supporting Business Environment Reforms35

which are defined as

34 GIZ (2013) 35 DCED (2008) Supporting Business Environment Reforms Practical Guidance for Development Agencies Many complementary guidance documents have also been subsequently developed eg on business formalisation quality infrastructure development or support to industrial

ldquoa complex of policy legal institutional

and regulatory conditions that govern

business activities It is a sub-set of the

investment climate and includes the

administration and enforcement

mechanisms established to implement

government policy as well as the

institutional arrangements that influence

the way key actors operate (eg

government agencies regulatory

authorities business associations etc)rdquo36

According to the DCEDrsquos multi-donor guidance

business environment reform aims to improve

the functioning of all business by reducing

business costs and risks caused by poor or

changing government policies laws and

regulations and by increasing competition by

stimulating new market entrants37 In the words

of Endeva (2013a) these measures tend to

lsquoenablersquo or lsquofacilitatersquo all business rather than

lsquoencouragingrsquo or lsquoempoweringrsquo specific market

actors or activities

Specifically the DCEDrsquos Practical Guidance names

nine sets of measures which represent lsquofunctional

areas of business environment reformrsquo38 In

addition the Business Environment Working

Group recognises that the ldquodesign and reform of

quality infrastructure systems has become

increasingly recognised as a critical element of an

enabling business environmentrdquo and published

complementary guidance on this39 Quality

infrastructure refers to the ldquopolicy and

institutional framework that governments

establish to provide evidence that products and

services meet the requirements set by regulatory

authorities and the market placerdquo For the

purpose of this paper the development of

appropriate quality standards as a lsquoregulatoryrsquo

sectors All relevant publications are available on the DCED Website 36 DCED (2008) p3 37 DCED (2008) p4 38 DCED (2008) p14 39 Annex to the DCED Practical Guidance on Quality Infrastructure (2014) the Annex is based on an in-depth DCED working paper on the topic

8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds

element of the quality infrastructure will be

considered as the tenth functional area of

business environment reform

1 simplifying business registration and

licensing procedures

2 improving tax policies and administration

in ways that minimise unnecessary costs

to business and optimise public benefits

(eg simplifying processes for paying

taxes avoiding excessive taxation

enhancing tax compliance)

3 enabling better access to finance

4 improving labour laws and

administration

5 improving the overall quality of

regulatory governance and frameworks

6 improving land titles registers and

administration

7 simplifying and speeding up access to

commercial courts and alternative

dispute-resolution

8 broadening public-private dialogue

processes with a particular focus on

including informal operators

9 improving access to market information

10 developing appropriate quality standards

In addition to these functional areas of reform

there are also many other types of government

initiatives that are of possible relevance for

inclusive business it is likely though that in

practice they require different sets of expertise

andor will often be part of different types of

programmes than the above-mentioned

measures They may also sometimes be at odds

with the principles and objectives of functional

areas of business environment reform In this

paper they will therefore be explored separately

as lsquowider government policies and strategiesrsquo

Wider policies and strategies can be seen to

comprise two different types of activities

21 Improving overarching policy and

institutional frameworks with a significant

impact on business activity for example

related to competition and innovation policy

and wider quality infrastructure

development These initiatives are

compatible with the lsquocompetitively neutralrsquo

approach of the functional reform areas and

22 Implementing lsquointerventionistrsquo

measures that favour certain businesses

activities or sectors over others including

bull Subsidising particular businesses sectors

or industries or

bull Introducing mandatory criteria in public

or private sector operations that lead to

benefits for the poor

These three dimensions of the business

environment ndash functional areas of reform

according to the DCED improvements of

overarching policy and institutional frameworks

and targeted government interventions ndash are

illustrated in Figure 1 below

Figure 1 A differentiated view on the business environment

Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies

Functional areas of the business environment

Wider government policies and strategies

Overarching policy and institutional frameworks

Wider government policies and strategies Targeted subsidies to certain businesses activities or sectors

9


Technical focus of this paper

Based on the definitional discussion above the

technical focus of this scoping paper will be as

follows Functional areas of business environment

reform and separately wider government

policies in particular interventionist strategies

that can increase the adoption and performance

of commercially viable inclusive business models

and activities by privately-owned companies

Given the wide scope of overarching policy and

institutional frameworks they will not be

reviewed in detail Any government measures

that are targeted at other types of entities such

as social enterprises or corporate social

responsibility activities will only be touched on

where significant case studies or lessons learnt

exist in the literature These typically represent

only ancillary areas of interest for PSD

practitioners and will therefore be treated as

such This is depicted in Figure 2 below

Figure 2 Framing the Business Environment for Inclusive Business for PSD practitioners

Issues not within the scope of this framework

A number of issues that affect the enabling environment for inclusive business are outside the scope of this

technical framework These include

bull Government enforcement capacity although inclusive businesses in rural areas may be particularly

affected by a lack of enforcement of laws and regulations (positively or negatively)

bull Government measures which can increase poor peoplersquos opportunities and capacity to connect to

markets ndash and therefore make it easier for inclusive business to integrate the poor in their value

chain Examples include rural road and infrastructure development targeted interventions to

provide access to finance for the poor facilitating poor producersrsquo access to knowledge inputs or

technologies generating demand for inclusive business services through demonstration and

awareness raising or strengthening vocational training in line with private sector needs

Indeed most private sector development practitioners would argue that any efforts changes to the

regulatory and policy regime need to be complemented by other interventions to promote inclusive business

development The particular objective of this paper is however to develop a better understanding of

business environment reform needs for inclusive business ndash based on the substantial experiences that exist

in this specific field of practice

Functional areas of

Business Environment

Reform

Wider government

policies and strategies

(focus on interventionist

strategies)

Inclusive Business Inclusive Business Models Activities

likely to generate commercially viable profits and pro-poor benefits

Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR

Technical focus of the scoping paper Ancillary

interest

Ancillary

interest

10

2 What does it take to create an enabling environment for

inclusive business Lessons from experience and debates on

effective practice

This chapter provides a global perspective on

areas of consensus and debate among PSD

practitioners on what it takes to create an

enabling environment for inclusive business It

aims to structure key reform areas and link

insights from different communities of practice in

order to promote a nuanced discussion on what

effective practice might look like

In total seven key questions and debates

regarding policy-level barriers and solutions

for inclusive business will be explored in

three parts Each part moves from more

general to more specific debates on what it

takes to create an enabling environment for

inclusive business

o The first set of questions focuses on

reforms in the functional areas of the

business environment as defined by the

DCED

o The second set of questions brings in

perspectives from wider government


o The third part cuts across these two areas

and discusses the suitability of different

types of donor programmes to identify

and promote appropriate reforms

Examples of concrete experiences will be

referenced in lsquoevidence snapshotsrsquo at the

beginning of each section

This is followed by a discussion and summary

of lessons learnt at the end of each chapter

Figure 3 below summarises the questions and

debates to be explored in this Chapter By clicking

on the hyperlinks in the figure you can jump

straight to the relevant sub-section or access

brief summaries of for key questions and sub-

questions

Research methodology and limitations

Practical examples different viewpoints and lessons on effective practice have been identified based on a review of key publications from a variety of research areas including

bull inclusive business

bull business environment reform

bull market systems development

bull partnerships with business

bull industrial policy

bull and empirical research on inclusive development pathways of emerging and developing economies

bull In addition targeted keyword search of different reform types and relevant inclusive business sectors has been performed

An important caveat is that the sheer range of possible inclusive business models sectors and policy options make it impossible to review existing evidence in an exhaustive way within the scope of this paper In addition evidence on the results of reforms could not be readily identified in all reform areas therefore experiences of specific policy barriers as well as practical examples of policy interventions (without information on their impact) have also been included in the lsquoevidence snapshotsrsquo On the other hand some government strategies influencing the operational environment of inclusive business are associated with vast bodies of research as well as sizeable practitioner networks (eg competition policy) the scoping paper therefore touches only briefly on some of such strategies and signposts to additional material for more detailed discussions on effective practice

11

Figure 3 Seven key questions and debates on the business environment for inclusive business

Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm

1 Are key constraints in the functional areas of business environment different for inclusive business compared to any

other business

Key business environment constraints in developing countries apply to the economy as a whole and are typically not exclusive to businesses engaging with the poor

Inclusive business models face particular constraints that need to be addressed in addition to general barriers in the business environment

[Summary 1]

2 What is the role of new regulation and de-regulation in creating an enabling environment for inclusive business

The key priority for inclusive business is to address the issue of gaps in regulation

The key priority for inclusive business is to address the issue of over-regulation of government-dominated sectors

3 Are legislation on special corporate forms or voluntary accreditation effective ways of promoting inclusive business

Legislation on special corporate formats facilitates inclusive business operations and serves as a critical basis for targeted public support

There is no consistent evidence that legal forms influence the formation or growth of inclusive business models

[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider

4 What is the appropriate level and type of selective government intervention vis-a-vis inclusive business

Overview discussion

Governments should only consider measures that reduce costs and regulatory insecurities for all business and that will level the playing field between incumbent market actors and lsquoinclusiversquo new entrants (eg regulatory reform innovation and competition policy)

Governments need to consider targeted measures that give incentives to particular industries companies or poor consumers as their target group

[Summary 3]

5 Should targeted support strategies prioritise criteria of social impact or productive growth

Pro-poor economic growth requires targeted government strategies for lsquoinclusive businessesrsquo

Pro-poor economic growth can only be achieved through a policy focus on high-growth labour-

intensive industries

6 Are mandatory rules and criteria on inclusiveness a good solution for pro-poor growth

Rules and regulations mandating the inclusion of low-income populations in the business model are an effective way of promoting inclusive business

lsquoPushrsquo approaches to regulation are likely to be ineffective and distort the market so should be avoided

[Summary 4]

Cro

ss-c

utt

ing

7 What types of programmes are best suited to identify and support suitable business environment reforms for

inclusive business

Promoting proven policies at government level

Analysing constraints for inclusive growth at the sector level

Identifying growth constraints for individual businesses

[Summary 5]

12

A Debates and lessons on


13

In this section

1 Are constraints in the functional areas of the business environment different for inclusive

business ndash compared to any other business40

Overview of general debates

Summary of findings

Business registration licensing and other essential regulations for business activity Evidence ndash Findings and discussion

Improving tax policies and administration Evidence ndash Findings and discussion

Enabling better access to finance Evidence ndash Findings and discussion

Improving land titles registers and administration Evidence ndash Findings and discussion

Broadening public-private dialogue processes Evidence ndash Findings and discussion

Developing quality standards and testing infrastructure Evidence ndash Findings and discussion

2 Should practitioners focus on introducing special regulation for inclusive business or promoting de-regulation

Evidence ndash Findings and discussion Summary of findings

3 Are legislation on special corporate forms or voluntary accreditation an effective way of promoting inclusive business

Evidence ndash Findings and discussion

40 Note that no particular evidence was found on the role of court access or labour regulations Similarly the role of access to market information is not reviewed separately although it is referred to in other sections Improving access to market information can comprise a variety of activities for example providing technical assistance to government institutions providing sectoral information to prospective investors (eg investment agencies) strengthening internal capacity of business associations to conduct market research providing access to information and communication technologies or strengthening linkages and information exchange between value chain actors

14

21 Are constraints in the functional areas of the business environment different for

inclusive business ndash compared to any other business

211 An overview of general discussionsA fundamental debate on the enabling

environment for inclusive business is whether or

not it differs in any significant way from the

conditions generally regarded as conducive to

private sector activity Is there really a need for

any specific or additional measures in order to

enable the creation and growth of inclusive

business Before studying the evidence for


this section briefly reviews key arguments from

different strands of literature

From the traditional lsquopuristrsquo viewpoint of

supporters of business environment reforms ndash

such as those behind the World Bankrsquos lsquoDoing

Businessrsquo indicators ndash the answer typically used to

be no Regulatory reform to reduce the cost and

risk of doing business in general is seen to benefit

the poor by encouraging entrepreneurs to ldquoenter

the market innovate invest in physical and

human capitals create productive employment

formalize their businesses and pay taxesrdquo41

Policy legal and institutional arrangements that

underpin the functioning of markets and the

costs and risks of doing business can allow firms

ldquoto grow create jobs and reduce povertyrdquo42

Based on this reasoning general business

environment reform could be seen create direct

benefits for the poor (eg as employees of

inclusive business or entrepreneurs) or to reduce

poverty indirectly (through the knock-on effects

of economic growth and increasing state

revenues more generally)

41 GTZ (2007) Driving Business Environment Reforms through Private Sector Development Strategies ndash The Cases of Ghana And Namibia 42 DFID (2015) Business Environment Reform and Poverty Rapid evidence assessment

Even the inclusive business literature is ambiguous

about the need for specific regulatory reforms for

inclusive business For example the

recommendation to address regulatory

uncertainty in order to reduce the risk of serving

poor consumers43 is not qualitatively different

from general wisdom on business environment

reform In fact as noted by GIZ (2013) most

advice on improving the environment for

inclusive business is general in nature and

includes facilitating businesses registration

improving the enforcement of contracts or

access to finance As such there is

ldquono consensus yet as to whether Inclusive

Business models require a specific

regulatory environment at a general

cross-sectoral levelrdquo44

There is however a lot of research questioning

the existence of any causal links between

traditional business environment reform and

improved market participation of the poor

Sceptics highlight the lack of evidence that

standard reform packages ldquoare pro-poor and

appropriate to lift the workforce in the informal

economy out of povertyrdquo45 DFID (2015) does not

find any direct links between regulatory reform

and reduced poverty although there are some

signs of indirect links46 Several recent

publications suggest that there is a need for

more tailor-made reform packages for businesses

that include the poor directly in their value

chains The reasons given for this are

summarised in the box below

43GSDRC (2010) Literature review on Inclusive Growth 44 GIZ (2013) p28 45 UNIDO amp GTZ (2008) Creating an enabling environment for private sector development in Sub-Saharan Africa 46 DFID (2015)

15

Arguments made in favour of a customised approach to business environment reform for inclusive business

1 Common regulatory frameworks pose particular entry or operational barriers to inclusive business

bull According to Monitor Inclusive Markets ldquothe most obvious barrier [to inclusive business] comes from laws regulations and procedures that inhibit the firm from operating its model easily often because they are designed to regulate mainstream models rather than innovative onesrdquo47

This may be because regulations are unnecessarily numerous making it too costly for inclusive business to comply with48 Given that inclusive businesses often already face higher upfront investment costs (eg because they operate in remote areas) and take longer to break even the costs of regulatory compliance may be a bigger financial concern than for other businesses

Regulations can also be unnecessarily restrictive meaning that even a single regulation could prevent inclusive business operations49 ndash eg if the business model is entirely new to the economy

2 The most binding business environment constraints are often specific to the sectors in which inclusive businesses operate

bull The World Bankrsquos 2016 report lsquoEnabling the Business of Agriculturersquo notes that although regulations of commercial activity in agriculture are not specific to inclusive business ldquoat least some of such sectoral enablers will have a particular role to play for inclusive businessrdquo50

bull An IFC survey of 167 inclusive businesses finds that about half of them encountered significant regulatory obstacles to including the poor in their value chains ldquoAmong the 78 businesses that said regulatory obstacles affect their ability to include the [poor] half operate in agriculture and half in the other sectors surveyed including retail housing health and educationrdquo

bull Similarly GIZ (2014) points out that much more often than through general business environment constraints ldquoinclusive business models are stifled by the sectoral regulatory environmentrdquo51

3 There are some cross-sectoral concerns that may disproportionally affect inclusive business

bull Grytz and Bauer (2016) argue that the logic of inclusive business is to create solutions for the poorrsquos problems which are often ldquocross-sectoralrdquo rather than sector-specific52 One example of this is informality as inclusive businesses across sectors are more likely to engage with

unregistered informal clients producers or suppliers

bull The above-mentioned IFC survey finds that across most businesses in the retail housing health and education sectors that did face regulatory obstacles ldquoaccess to finance had the biggest effect on their ability to break even achieve scale and reach more [poor] individualsrdquo 53

bull Acumen Bain and Company (2014) argue that ldquopredictable taxation and transparent regulationrdquo had a bigger influence on innovative and risky inclusive business models than on other businesses54

The following two sections will review evidence on national and sector-level barriers and reform for inclusive

business in seven of the functional areas of the business environment The reform areas discussed include

business registration and licensing access to finance taxation land titling public-private dialogue and

quality standards A second sub-section will consider the role of overarching regulatory frameworks for

inclusive business

47 Koh et al(2014) 48 Stephen Heyneman and Jonathan Stern (2014) Low cost private schools for the poor What public policy is appropriate International Journal of Educational Development 49 Ibid 50 The World Bank (2016) Enabling the Business of Agriculture Comparing Regulatory Good Practices The report reviews legal barriers to 10 production inputs and market enablers in 40 countries seed fertilizer machinery finance markets transport information and communication technology (ICT) land water and livestock 51 GIZ (2013) p28 52 Mareike Grytz (2016) 53IFC (2012) Policy Note on the Business Environment for Inclusive Business Models 54 Acumen Bain and Company (2014 ) Growing Prosperity Developing Repeatable Models to Scale the Adoption of Agricultural Innovations

16

212 Interventions related to business registration licensing and other essential

regulations for business activity (Functional area 1)

Evidence snapshot Examples of inclusive business experience with registration and licensing barriers and reform

National cross-sectoral level Barriers In Tanzania demanding business registration and certification requirements of the Business Registrations and Licensing

Agency meant that most SME food processors were unable to adopt food fortification (only registered SMEs were allowed to fortify) which put limits on the availability of fortified food to low-income populations (IDS 2015)

Reform According to literature reviews (Bruhn and McKenzie (2013) and DCED (2014) on registration reform and support on small informal business one-stop shops increased firm registrations by 5-6 in Colombia and Mexico electronic business registration platforms led to a 20 increase in formalisation in 3 countries and monetary incentives in Sri Lanka helped increase registration rates Many other types of reform or support had no effect and evidence is mixed on whether formalised firms change their behaviour or increase their revenues

Reform In Tanzania evictions of informal street vendors increased from 36 to 70 in the first four years after the adoption of new legislation aimed at increasing business registration (Lyons Brown and Moska 2013)

Agriculture Reform With only one licensed seed importer Fijirsquos horticultural sector suffers from lack of sufficient stocks and different varieties of

seeds for farmers Complex licensing requirements of Fijirsquos Biosecurity are one of the reasons other businesses have not entered this market The Market Development supported a partner company in obtaining an import licence by facilitating access to information and supporting the company in meeting compliance requirements (a more detailed case description is available in section C) (MDF 2015)

Health and Nutrition Barriers Multiple and complicated approvals required for hospitals in India has been identified as a key regulatory barrier for

inclusive business models in health care (IFC 2014) In Senegal only individuals with a medical licence can register private hospitals with the Ministry of Health however medical schools

donrsquot teach business administration whereas business school students could not be registered as hospital owners (Dalberg 2012)

Financial services (note more examples of licensing laws in the financial sector are covered in the lsquoAccess to Financersquo section) Reform In Kenya the government has started to formalise Savings and Credit Cooperatives (SACCOs) with support by the DFID-

funded Financial Sector Deepening Programme (FSD) A cross-governmental task force designed the SACCO Societies Act which included provisions to improve SACCO banking services and protect the shares and deposits of the (largely poor) customer base (Endeva 2013a)

Reform The Mexican government allowed banks to open small bank accounts for people without formal ID cards (Endeva 2013a)

Education Barriers In Tanzania regulations for private school registration and operation are unnecessarily numerous where the number and

variety of regulations followed no private school could possibly be set up (Heyneman 2014) Barriers In Kenya a requirement for private school to own land represents a key barrier for low-cost private providers to register as

schools with the Ministry of Education (Heyneman 2014)

Energy water and environmental services Reform In Albania changes in the legislative framework allowed a waste recycling company to pay its small suppliers in cash which

was previously illegal (Endeva 2013a) Reform In Malawi the energy sector has been highly regulated and operating license covering the generation transmission and

distribution of energy by private providers did not exist MEGA the countryrsquos first off-grid hydropower provider which targets remote communities worked closely with the government to agree a new licensing model This was expected to influence the new Energy Policy so that other businesses could replicate a similar model (Business Innovation Facility 2013)

Barrier A company specialising in the electrification of rural off-grid villages by combining wind and solar energy with a diesel generator encountered significant delays scaling up of projects in new villages due to cumbersome procedures of the Senegalese government in the granting of licenses and approving a new tariff model (Dalberg 2012)

17

As pointed out by Ngoasong et al (2015) inclusive

businesses can be expected to ldquoface similar

legislative challenges as those facing all other

businesses in a countryrdquo ndash including ldquolimited

support for registering businessesrdquo55 Indeed

there is anecdotal evidence that business

registration and licensing procedures have had

an impact on inclusive business operations ndash both

at the national and sectoral level How could

simplified or improved registration and licensing

regimes affect inclusive business in particular

55 Ngoasong Michael Paton Rob and Korda Alex (2015) Impact Investing and Inclusive Business Development in Africa A research agenda The Open University Milton Keynes

The empirical evidence on general or national-

level registration or licensing reform on inclusive

business is broadly inconclusive The examples

reviewed suggest that there is a stronger case for

assessing reform opportunities from the bottom-

up ndash based on individual business constraints or

sectoral bottlenecks to inclusive business

registration and licensing The table below

summarises the empirical findings for three

different pathways in which registration and

licensing regimes can affect inclusive business

Findings and discussion How registration and licensing rules affect inclusive business

Scenario 1 Scenario 2 Scenario 3

As a result of operating in the formal sector previously informal businesses may grow or change

their business model ndash and create incomes employment or better services for the poor in their

supply chain This view considers the formalising business itself as a potential inclusive business

Formalisation or relaxed requirements for informal operators could make it

easier for them to interact with formal market players

eg as suppliers In this case the company

integrating the entrepreneur in its supply

chain represents the inclusive business

A change in licensing regimes may be necessary to enable market entry or growth of innovative

inclusive business

Cross-sectoral reform Complex registration

requirements can hamper the adoption of inclusive

business models (eg food fortification by SMEs in

Tanzania) Some national-level reforms have had a small positive impact on

formalisation but there is no systematic evidence

showing that incomes have increased as a result Too

rigid enforcement of reforms aimed at

increasing levels of business registration may have adverse effects on micro-entrepreneurs

Business-specific

reform In the case of the

Informal Savings and Credits Cooperatives in

Kenya formal structures were

designed around an informal activity used

by the poor to improve their livelihoods and

reduce economic risk As a result of

formalisation of the SACCOs clients now also have access to

formal financial services

Business-specific amp sectoral

reform In some cases relaxing

regulatory requirements for business operations

has been critical to enhance the interaction

between inclusive business and the informal sector

Examples include Albaniarsquos step to allow recycling

companies to pay small suppliers in cash or Mexicorsquos initiative to

enable access to bank accounts for people without an ID card

Sectoral reform

Licensing reform needs for inclusive business are often

sector-specific Examples include the licensing difficulties of Indian private healthcare providers or off-grid electricity providers in

Senegal While more substantive reform will be needed for some business models (eg to allow

entry into state-controlled sectors) others would already benefit from the removal of a single licensing rule ndash such as

Kenyarsquos requirement for private schools to own land

18

212 Improving tax policies and administration to reduce unnecessary costs to

business (Functional area 2)

Evidence snapshot Examples of inclusive business experiences with tax policy barriers and reform

Agriculture

Barriers For Fijian exporters in sectors with pro-poor growth potential the fact that Fiji only has a small industrial sector means that a lot of inputs have to be imported from overseas Import duties and taxes increase raise their running costs meaning that they operate below their maximum potential (MDF 2015)

Energy water and environmental services

Barriers Solar products in a number of African countries are subject to a range of taxes and duties reducing their affordability and attractiveness in relation to kerosene which is exempt from these levies and in some cases even benefits from government subsidies This makes it more difficult for solar lighting providers to scale (Monitor Inclusive Markets 2014)

Barriers Across the 15 countries in the Economic Community of West African States alone $4 billion is also spent each year subsidising kerosene for lighting which represent a key barrier for the adoption and scaling of the off-grid lighting market in rural areas (UNEP 2014)

Barriers SPEC was the first solar panel manufacturer in West Africa Tax incentives for imported solar panel were identified as one of

the main constraints for SPECrsquos growth (Dalberg 2012) In other African countries high taxes and duties on solar products make it difficult for solar lighting providers to scale (Koh et al 2014)

Education Note that the barrier described below may be particularly relevant for schools run as social enterprises

Barriers The tax structure in some countries may pose a threat to the financial sustainability of private low-cost schools In Tanzania for instance all school fees are taxed as if they are profits In Jamaica private schools were supposed to receive a waiver from the General Consumption Tax (like a value added tax) but none of them have been made aware of this hence all paid a GCT as if they were private businesses (Heyneman 2014)

19

Like other companies inclusive businesses are

likely to benefit from simplified tax

administration although this does not receive

any specific attention in the literature There are

however two ways in which inclusive business

seem to particularly benefit from tax-related

reform

Reducing excessive taxes and duties on inclusive

technologies

In certain sectors there is evidence that

excessive taxes and duties on imported

technologies or parts can represent a significant

cost barrier for inclusive business A frequently

mentioned example are solar lighting products

which are widely considered as having great

potential in extending off-grid lighting to poor

rural consumers In practice however actual

experiences in reducing excessive tax for

inclusive business technologies to acceptable

levels however donrsquot seem to be widely

documented Instead subsidies in the form of tax

or duty exemptions or targeted financial support

for relevant technologies seem to be more

common as these are outside the scope of the


they will be discussed in section 25

Removing tax and other financial incentives from

incumbent industries that inclusive businesses

have to compete with

In the case of solar lighting products the

common government practice of subsidising

kerosene can represent an additional barrier for

solar lighting providers to offer competitively

priced products In effect it ldquohold(s) back the

transition to cheaper and cleaner sources of

energyrdquo for the poor56 When advocating for the

removal of tax exemptions (or subsidies) from

incumbent industries careful sequencing of

policies is critical For example discussions on the

removal of kerosene subsidies in Nigeria in early

2016 highlight that sudden price hikes of

kerosene could ldquoresult in the increased use of

even less-clean cooking fuels like coal and

firewood by low-income earnersrdquo57 Hence a

gradual reduction in existing subsidies coupled

with the promotion of cleaner and affordable

alternatives will be a more suitable approach in

certain contexts

56 Solar Aid (2015) Kerosene subsidies ndash A hidden cost 57 VenturesAfricacom (2016) This is what the removal of kerosene subsidy means

Findings and discussion How tax policies and administration affect inclusive business

20

213 Enabling better access to finance (Functional area 3)

Evidence snapshot Examples of regulatory barriers and solutions for inclusive business to receive or provide finance

Barriers and Reform According to the World Bank financial systems are more inclusive in countries with branchless banking

laws which cover agent banking (whereby a bank relies on agents that provide services to rural customers through retail points) and mobile banking Both mobile banking and agent banking offer farmers more economical ways to access financial services so that they do not need to travel far to a bank branch o Of the low-income and lower-middle-in-come countries covered in the report only 11 regulate agent banking The report

also specifies various good practices in agent banking regulations and how many countries comply with them including minimum standards to qualify as an agent allowing agents to enter both exclusive and non-exclusive contracts with financial institutions and to offer a wide range of services

o Of the 28 countries that have regulations on e-money 16 allow businesses to issue e-money without having to hold a banking license one of the good practices outlined in the report While these businesses still need adequate supervision obtaining a banking license can be costly and is likely to deter innovative actors from entering the market (World Bank 2016)

Reform In Kenya a loose regulatory structure and a special license from the Central Bank facilitated the success of the mobile banking service M-PESA A new regulatory regime was developed from scratch to meet the requirements for scaling and supervising this innovative solution (eg WTO (2013))

Barrier A survey of banking in 4 East African countries identified three priorities for improved SME lending Reducing high

documentation minimum deposit andor high collateral requirements (AfDB 2012) Barrier Commercial banks in the Philippines have been restricted by regulation and their collateral based lending practises and

minimum deposit requirements in their ability to reach the BoP (ASEI 2013) Reform Ugandarsquos Warehouse Receipt System Act of 2006 and Warehouse Receipt Regulations of 2007 have created an

enabling environment allowing small farmers to use warehouse receipts as collateral for loans (World Bank 2016)

Barrier Some countries in Africa place significant restrictions on the investment policies of local institutional investors (eg

retail banks insurance companies and pension funds ) ndash including restrictions on investing in private equity funds or outside the country a preference for large transactions (US$30 mio and above and a avoidance of deals with high perceived risks These restrictions limit the growth of the impact investing industry (UNDP 2014)

Barrier A literature review and field study in Sierra Leone Cameroon and Kenya highlights that many government authorities are either unaware of the impact investing phenomenon or unsure about the role of government policies in impact investing (Ngoasong et al 2015)

Reform In 2015 the US government changed regulations that discouraged pension funds from seeking out impact investments Previously impact investments were subject to extra scrutiny often eliminating them from consideration by pension fund managers The new rule states that lsquofiduciaries may consider (social and environmental) goals as tie-breakers when choosing between investment alternatives that are otherwise equal with respect to return and risk over the appropriate time horizon (Stanford Social Innovation Review 2015)

Reform Until 1991 the financial institutions and banks of Tanzania had been nationalized and there were only three

commercial banks Financial reforms have enhanced the investment climate enabling 26 licensed banks (both foreign and domestic) to be fully operational in the country Note While such overarching reforms are not inclusive-business specific they can improve access to finance for all business and lay the basis for new financial services that are of particular relevance to inclusive business For example non-bank financial institutions (eg telephone money transfer services etc) are licensed to conduct business in the country (FAO 2012 and Finance Maps)

Reform Research on the inclusive growth of Asian economies such as South Korea and China however suggest de-regulation should not follow too soon Central bank policies (eg rediscounted loans) and government regulations to help the finance

industry align with the countryrsquos industrial development growth have been essential (Studwell 2013)

21

The regulatory environment in the financial sector

can affect inclusive business in two ways It can

make it easy or difficult

1 for inclusive business (and their beneficiaries)

to access finance or

2 for inclusive business to act as providers of

financial services themselves

Enabling access to finance for inclusive business

Financial access is a concern for many developing

country businesses inclusive or not SMEs in

particular often donrsquot qualify for microfinance

but are not serviced by banks which prefer bigger

and lower risk investments Wide-ranging

reforms of the financial system including

opening up nationalised financial sectors to

commercial banks while keeping the state

involved in setting appropriate policies and

regulatory frameworks can often be a pre-

condition for improving access to finance

including for strategic growth sectors Similarly

specific regulatory changes to facilitate SME

lending could also make it easier for inclusive

business in that category to access bank loans

More often than other companies inclusive

businesses do however rely on alternative or

additional forms and sources of finance These

include among others impact investment funds

crowd-funding or angel investors ndash all of which

allow inclusive business to share risks take a

longer term view on business growth and to

attract larger amounts of financial capital

Regulatory frameworks for such forms of finance

do however often lag behind in developing

countries Several studies listed above highlight

restrictive or inappropriate regulatory

environments for impact investing58 as a

particular constraint to inclusive business

Few experiences of specific business environment

reform for lending to or investing in inclusive

58 Defined by the GIIN network as ldquoinvestments made into companies organisations and funds with the intention to generate social and environmental impact alongside a financial returnrdquo

business could however be identified as part of

this review Examples of general reform

recommendations which may vary in feasibility

and effectiveness include

bull Awareness raising among governments and

banks

o Raising awareness among governments

about impact investment and the role of

policies and regulations59

o Raising awareness among banks about

options for establishing targeted lending

programs for inclusive business within

existing regulatory frameworks60

bull Facilitating access to market information

o Creating one-stop shops providing access

to the most relevant information about

investment opportunities and

procedures61

o Increasing market transparency on

investment opportunities through social

reporting requirements linked to specific

legal forms or inclusive business

accreditation schemes

bull Increasing capital supply and investability

o Reducing high documentation minimum

deposit andor high collateral requirements

for SME lending62 such initiatives could

also help increase inclusive businessrsquo

readiness for equity investment63

59 Based on Ngoasong et al 2015 60 G20 Inclusive Business Framework 61 Ngoasong et al (2015) In Senegal for example the Investment Promotion Agency provides information about investment and business opportunities in priority sectors such as agribusiness fishing tourism and healthcare (see Dalberg 2012 Assessment of Impact Investing Policy in Senegal) 62 AfDB (2012) Bank Financing to Small and Medium Enterprises in East Africa Findings of a Survey in Kenya Tanzania Uganda and Zambia 63 Lack of investment-readiness is common among inclusive business eg in the Philippines where ADB found that among 100 inclusive business models only 15 were investment-ready (ADB (2016) Accreditation of Inclusive Business Pioneering IB Policy in the Philippines log post on the Inclusive Business Hub) Similarly in Senegal the lack of finance and capacity-building services for SMEs in Senegal mean that there are few investment‐ready enterprises of interest to impact investors (Dalberg 2012)

Findings and discussion How business environment issues related to financial access affect inclusive business

22

o Introducing legislation allowing farmers to

use warehouse receipts as collateral for

loans64

o Changing regulations that stipulate a high

minimum investment size for pension funds

or other institutional investors or that

discourage them from seeking out

investments with high perceived risk and

social and environmental goals65

bull Improving other elements of the business

environment that have a direct influence on

financial access such as

o making it easier to register a business (see

above) as impact investors or banks

cannot easily support informal SMEs and

o deregulating government-dominated

sectors that are of high relevance to

inclusive business but highly restrictive

vis-a-vis private investors (eg health

water energy or education ndash see also

section 23)

Note that other measures mentioned in the

literature focus on interventionist government

approaches (see section 25) to increase capital

supply and demand such as

bull providing credit guarantees to banks first-

loss capital to investors or investing directly

in inclusive business or

bull improving business development services to

build financial and managerial skills of

businesses66 A market development

programme In Fiji for example has

collaborated with ANZ to develop a new

business model for its SME lending

incorporates advisory services to

businesses67

64 The World Bank (2016) Enabling the Business of Agriculture Comparing Regulatory Good Practices 65 Based on UNDP (2014) Impact Investment in Africa Trends Opportunities and Constraints and Stanford Social Innovation Review 2015 66 Dalberg (2012) 67 Under the initiative should SME loan applications not fully meet the banks serviceability criteria but look promising the business will have access to business advisory support to strengthen their business plan and cash flow projections as part of more comprehensive applications Once the loan gets approved the advisor would work with the SME

In deciding on reform options it is also useful to

consider possible trades-off arising from a focus

on finance catering specifically to businesses with

social objectives For example a study by

Ngoasong et al (2015) of impact investing in

Sierra Leone Cameroon and Kenya identifies two

key tension areas

bull Many indicators of social impact used by

impact investment funds risk discouraging

entrepreneurs from emphasising commercial

objectives and

bull Impact funds primarily support businesses

outside the manufacturing sector even

though labour-intensive manufacturing may

offer significant and scalable opportunities

for inclusive business68

Enabling inclusive business to act as providers of

finance to the poor

Branchless banking laws and regulations are often

considered as key elements of an enabling

environment for business who wish to act as

providers of finance to the poor Two sub-sets of

branchless banking include

bull agent banking whereby a bank relies on

agents that provide services to rural

customers and

bull mobile financial services in particular

through non-bank institutions

The World Bank (2016) summarises some of the

good regulatory practices in both areas in order

to enable inclusive financial market development

as summarised in the box below

throughout the loan period thereby reduce the chance of bank default The fees of the advisor will be inbuilt into the loan scheme making this arrangement a market-led process (see marketdevelopmentfacilityorg for more information) 68 Ngoasong et al (2015) Note that the role of manufacturing for inclusive growth will also be discussed in more detail in section 252

23

Elements of good practice in branchless banking regulations69

Agent banking regulations bull should identify minimum standards to qualify and operate as an agent such as real-time connectivity to the commercial bank bull should allow agents to enter both exclusive and non-exclusive contracts with financial institutions bull should allow agents to offer a wide range of services such as cash-in cash-out bill payment account opening and processing of loan documents bull should hold commercial banks liable for the actions of their agents E-money regulations bull should allow both banks and non-bank businesses to issue e-money bull should specify minimum licensing standards for non-bank e-money issuers such as

o internal control mechanisms that comply with anti-money laundering laws

o consumer protection measures and recourse mechanisms

bull should require e-money issuers to safeguard and ring-fence customer funds by holding funds in a separate account at a regulated financial institution

69 Based on The World Bank (2016) p38 39

While it is beyond the scope of this paper to

unpack the complex regulatory conditions for

mobile banking in particular a key lesson is that

the challenges and solutions for scaling mobile

banking solutions are highly context-specific In

Kenya a loose regulatory structure and a special

license from the Central Bank facilitated the

success of M-PESA however as a new regulatory

regime had to be developed from scratch and

mobile money cuts across the jurisdiction of

different regulatory bodies uncertainty about

who would be in charge was a major challenge

Programmes like Financial Sector Deepening

Kenya worked closely with government to

develop appropriate regulations70 In Nigeria in

contrast the Central Bank has been reluctant to

issue banking licenses to mobile network

operators strict bank regulations around lsquoknow

your customerrsquo processes might also limit

innovative and pro-poor financial products More

generally strong banking lobbies can represent a

critical barrier to developing and scaling mobile

money services71

In addition to the regulatory environment other

factors are likely to be critical such as the

competitive position of the mobile banking

service provider and their incentive to invest in

building an agent network the existing rural

financial infrastructure population density and

financial literacy 72

70 WTO (2013) M-PESA Regulatory Framework httpswwwwtoorgenglishtratop_eserv_ewkshop_june13_ewanjau_epdf 71 WTO (2013) and Kanika Saigal (2014) Nigeriarsquos regulatory

environment hostile to mobile money ndash Safaricom CEO

Article on Euromoneycom 72 Koh et al (2014)

24

214 Improving land titles registers and administration (Functional area 6)

Evidence snapshot Examples of the role of land titling interventions for inclusive business

National cross-sectoral level Reform A systematic review of 20 studies of land property right interventions on farming households in Latin America Africa and

Asia (Lawry et al 2014) finds that freehold titling has positive impacts on farm productivity and income most likely due to increased investment as a result of perceived tenure security The effects are particularly strong in Asia and Latin America where title is the dominant means for securing land rights

Reform More recently land certification in Ethiopia was found to have a positive effect on productivity across households in particular for female- headed households (Journal of Development Studies 2015) A study of land titling in rural Vietnam (Newham Tarp and van den Broeck 2015) found that obtaining a land title lead to higher yields

Reform A series of land reform programmes undertaken in China Japan Korea and Taiwan divided agricultural land on an equal

basis among the farming population This backed by government support for rural credit training and other support services created a new market in which owners of small household farms were incentivised to invest their labour and the surplus they generated towards maximising production The result was hugely increased yields in all four countries which primed the demand for goods and services and represents the first stage of inclusive industrial development in these countries (Studwell 2013)

Reform Reforms that improve the security of land tenure through land titling and administration reform do increase firm-level

investment These reforms increase the likelihood that investments made today can be realised tomorrow facilitate a more dynamic land market and increase the attractiveness of further investments necessary for broad-based economic growth (DFID 2015)

Reform In Colombia a law conceding collective property rights over ancestrally inhabited land to indigenous communities ldquoenabled them to organise a fair and sustainable gold value chainrdquo (Endeva 2013a)

Reform Revisions of land law rules in Tanzania to enable long-term leasehold property rights for up to 99 years encouraged investment by both domestic and foreign investors (FAO 2012)

Barrier Agricola International a hybrid for profit and not‐for profit organization in Senegal develops barren land into profitable

drip‐irrigated plots through an innovative system of ldquofranchisingrdquo However Agricola is constrained by land laws that do not allow the division of land in smaller plots and lease agreements (Dalberg 2012)

Barriers Secondary and original qualitative research by Oxfam (Willoughby 2014) points to the importance of legislation and policies to protect the land rights of local communities prior to the initiation of large-scale agricultural PPPs as leasing customary and leasehold land to investors seems to have increased the risks around land use rights and access for local communities Similarly Dalberg (2012) describes how the leasing of land to foreign companies for biofuel production caused conflicts with villagers who had used the land for food crops

Barriers In Indonesia Myanmar and Cambodia special regulations govern land ownership and land use rights for national and

international investors but poor implementation and a lack of transparency in land rights distribution meant that gains and benefits favoured large agribusiness and exacerbated inequity among small scale farmers (Teng 2015)

25

Land legislation can play a critical role for inclusive

business by

bull affecting the ability of the poor to access land

and interact with inclusive business

bull influencing the feasibility of specific inclusive

business models that heavily depend on the

land-related legal environment and

bull influencing investment decisions of inclusive

businesses in general

Enabling access to land for inclusive business and

their beneficiaries

There are numerous studies including a

significant body of academic research showing

that land titling reform at the national level has a

positive impact on the productivity and incomes

of rural households To the extent that this

increases rural householdsrsquo ability to supply to or

buy from inclusive business land titling reform

can therefore be considered as an important

aspect of an enabling environment for inclusive

business

There is also evidence that land titling reform

increases firm investment Similarly appropriate

frameworks for leasing land (eg long-term

leasehold regulations) play a critical role in

attracting investment ndash including in agriculture

and other sectors relevant for inclusive business

Removing binding constraints for core business

activities involving land

Beyond such general improvements of the

investment climate there may also be specific

inclusive business models whose success depends

significantly on land legislation One example is

the case for Agricola International and their idea

of leasing small drip-irrigated plots to farmers in

Senegal

Implementing this business model has however

been held back by land laws prohibiting such

arrangements Identifying and addressing such

specific constraints will require close interaction

with individual inclusive businesses

Risks to land access for the poor in working with

agribusiness

Practitioners may also need to consider specific

risks to the poor arising from land ownership and

land use rights for business A recent study on the

enabling environment for inclusive agribusiness

in Southeast Asia points out that regulations

governing businessesrsquo land rights have often

been poorly implemented and monitored

leading increased marginalisation of the poor73

While many large-scale agricultural PPPs in Africa

have been developed with the intention to

integrate the poor in international value chains

Willoughby (2014) claims that leasing customary

and leasehold land to investors has at times

jeopardised local communitiesrsquo rights to use or

access land While a more rigorous evidence base

would be needed to better understand such risks

donor programmes could support the inclusion

of relevant safeguards in land or investment law

and conduct case-by-case risk assessments of

business partnerships to anticipate and mitigate

such risks

It is also widely known that land titling legislations

can be one of the politically most contested

business environment reforms and requires

country-specific solutions A large body of

literature is available on how land titling reform

may be achieved in practice74

73 Teng (2015) The Enabling Environment for Inclusive Agribusiness in Southeast Asia 74 See for example Narh et al (2016) Land Sector Reforms in Ghana Kenya and Vietnam A Comparative Analysis of Their Effectiveness FAO (2006) Better Land Access for the Rural Poor Lessons from Experience and Challenges ahead IIED (2004) Land Tenure and Administration in Africa Lessons from Experience and Emerging Issues

Findings and discussion How land titling interventions affect inclusive business

26

215 Broadening public-private dialogue processes (Functional area 8)

Evidence snapshot Examples of the role of broad-based public-private dialogue for inclusive business

National cross-sectoral level (Note that many case studies of reform following public-private dialogue have been developed and

signposted by initiatives such as publicprivatedialogueorg Selected examples are given below) Reform The Ethiopia Public-Private Consultative Forum has resulted in overhauling the customs procedures an improvement in

business licensing and registration process a simplification of company formation procedures in the betterment of property rights regime and in ensuring a fair participation of the private sector in the public procurement systems among others The simplification of company formation and administration procedures has significantly reduced the time and money wasted by the prolonged document authentication process The elimination of a capital confirmation requirement for license renewal has allowed many small traders the invest capital rather than saving it for renewal purposes More than 55000 undocumented land holding were formally recognised(Mihretu and Tolina 2015)

Agriculture

Reform With the help of the ENABLE programme the Fertiliser Producers and Suppliers Association of Nigeria (FEPSAN) contributed to a change in policy by the National Council on Agriculture (NCA) around fertiliser distribution from direct provision towards a free market model supported by a voucher system for poorer farmers Under the previous arrangements very few farmers received fertiliser on time or at all leading to chronically low yields (Davies 2014)

Health and Nutrition

Reform As one of the results of a joint advocacy initiative of donors NGOs and business on food fortification legislation the Tanzanian government waived import taxes on fortification equipment and nutrient premixes to increase incentives for private sector adoption and reduce consumer prices (Preedy et al 2013 Method et al 2015)

27

Institutionalised mechanisms for public-private

dialogue with broad private sector participation

are considered as a critical enabler of private

sector development and inclusive economic

growth in both the business environment and

inclusive business literature Researchers such as

Qureshi and te Velde (2013) find that effective

state-business relationships facilitated by an

organized private sector improve firm

performance in seven sub-Saharan African

countries75 A synthesis of case studies by the

World Bank Group (2011) points to the role of

public-private dialogue fora in removing binding

constraints to competitiveness (eg in access to

technology and financing or tax and regulatory

constraints) as well as in improving governance

ldquocoordination brings more inclusiveness

regulatory improvements result in more

fairness and a level playing field between

the economic actors of the area

streamlined transactions mean more

transparency in who gets awarded what

contract (hellip) and finally(hellip) public-private

dialogue fora (hellip) [imply] stronger

accountability from public officialsrdquo 76

In addition GIZ and IFC both explicitly stress the

importance of public-private dialogue for raising

governmentsrsquo awareness of obstacles facing

inclusive and innovative business models77

Engaging in public-private dialogue can be of

particular value for inclusive business in the

following cases

bull to discuss issues (eg relating to new

technologies) for which little government

knowledge or awareness exists

bull to advocate for fundamental structural

reforms required to open up opportunities

for inclusive business (eg privatisation and

75 Qureshi M and te Velde D W (2013) State-Business Relations Investment Climate Reform and Firm Productivity in Sub-Saharan Africa Journal of International Development 25 912-935 76 The World Bank Group (2011) Public-Private Dialogue for Sector Competitiveness and Local Economic Development Lessons form the Mediterranean Region 77 GIZ (2014) and IFC (2012)

deregulation in government-controlled

sectors see 23)

bull to provide inputs to sector strategy

discussions78

bull to discuss reforms which are largely untested

(eg legal formats for inclusive business see

section 24) or

bull to provide regular feedback on industrial

policies (see section 24) or reforms that have

not always proven to be effective due to

lacking alignment with private sector

incentives (eg mandatory inclusion of the

poor section 24)

bull in addition such platforms could potentially

play a role in providing a single gateway for

impact investors to learn about and connect

to inclusive businesses

Options for supporting public-private dialogue for

inclusive business

There is yet little agreement though on the best

format for public-private dialogue for inclusive

business which are likely to depend on the

country- or technology-specific context options

include

bull Using existing public-private dialogue fora

GIZ (2014) recommends trying to build on

existing dialogue processes and avoid

fragmentation where possible79 Many

dialogue fora feature sub-groups to tackle

sector-specific regulatory issues ndash including

those relevant for inclusive business (eg

agribusiness) Such groups could provide

relevant entry points for policy dialogue

bull Forming new dialogue platforms for inclusive

business only especially where existing fora

do not seem to be appropriate Such

platforms may have not been created so far

because inclusive businesses operate in

different sectors Yet they may share

concerns about the business environment

Some practitioners therefore argue in favour

of new business associations that are specific

78 GIZ (2014) 79 See for example GIZ (2014) p 33

Findings and discussion The role of public-private dialogue for inclusive business

business

28

to inclusive business and cut across sectors

Sectoral associations may instead have the

advantage of more shared interests and

more focused efforts

bull Global dialogue platforms can be of use for

specific inclusive technologies whose

adoption would be facilitated through an

international approach One example is

standard-setting related to clean cookstoves

(see Chapter C for more details)

Learning lessons from earlier public-private

dialogue initiatives

Regardless of the specific format chosen policy

dialogue initiatives for inclusive business can learn

from earlier successes and failures in this field the

box below compiles illustrative lessons

Illustrative lessons on public-private dialogue for programmes promoting inclusive business80

Donor support to public-private dialogue should be informed by in-depth analysis of the political

investment and sectoral business climate as well as the key players their incentives and relationships81 A focus on specific sectoral issues instead of a generalised dialogue (eg on reforms for inclusive business

in general) helps private actors to aggregate their interest and maintain momentum and deliver change82 Capacity-building of business associations can be essential as reform proposals are more likely to succeed

when a business association has a certain degree of political and technical capacity83 A major factor in failed initiatives has been for programmes to use public-private dialogue fora to deliver

certain reforms very quickly ndash eg by directly paying for staff of business associations or the cost of meetings or producing relevant research themselves etc Such approaches have often not been sustainable after the end of donor support Some more recent approaches try to take a more facilitative role by focusing on the incentives and capacities of stakeholders to engage in dialogue o For instance the ENABLE programme in Nigeria would not produce any research to inform reforms

but catalyse the market for research It helps business associations understand the importance of research builds their capacity to commission research and works with research institutions to offer market relevant research service to business associations it also advices coordinating institutions to help provide linkages between buyers and sellers 84

There can be trades-off between the lsquoinclusivenessrsquo of public-private dialogue and effectiveness At times it can be more fruitful to ldquolet go of a full participation modelrdquo and focus on working with influential business leaders and champions of reform in the government 85

80 For more information on the lsquohow-torsquo of public-private dialogue please refer to the World Bankrsquos lsquoPublic-Private Dialogue Handbookrsquo 81 Pfeiffer C (2012) Reform Coalitions Developmental Leadership Program p6 see also DCED (2011) The political economy of business environment reform An introduction for practitioners Adam Smith International and The Springfield Centre (2011) A market systems approach to public-private dialogue and business environment reform A case study of ENABLE Nigeria 82DCED (2008) p28 Pfeiffer C (2012) p4 83 Pfeiffer (2012) p6 84 Adam Smith International and The Springfield Centre (2011) 85 Pfeiffer (2012)

Policy dialogue outside of participatory

platforms

Critically public-private dialogue platforms are

not always the best solution for inclusive

businesses to raise regulatory constraints with

the government Especially if a pioneer

business aims to introduce an entirely new

technology or way of operating specific

regulatory issues may arise that are not

shared by any other business in the country

Direct exchange between such pioneer

businesses and government counterparts is

likely to be more suitable Donor agencies and

programmes can still play a critical role in

providing contacts facilitating dialogue and

providing credibility and leverage to the

business

29

216 Developing quality standards and testing infrastructure (Functional area 10)

Evidence snapshot Examples of the role of quality standards and testing for inclusive business development

Agriculture Barriers The lack of quality standards and regulatory enforcement hurt a new provider of micro-drip irrigation in India as multiple

unregulated and unregistered companies entered the market offering low-quality products at even lower prices As a result farmers lost confidence in drip irrigation as a whole (Acumen and Bain 2014)

Reforn Research on sustainability standards such as organic or Fairtrade standards finds often finds positive impacts on prices received by farmers ndash but not always on poverty reduction (see studies referenced in the DCED Evidence Framework in particular here and here)

Reform Following the introduction of tighter EU sanitary standards for nut imports in 1999 Boliviarsquos government immediately demanded testing for all outgoing shipments as a condition for export licenses which triggered Bolivian producers to cooperate in upgrading their processing and testing of nut quality through their business association The association also provided a one-stop shop for export licenses and training to members Conversely the Brazilian government did not demand comprehensive testing The industry stayed fragmented and was shut out of the EU market due to contaminated shipments (Coslovsky 2014)

Reform In the absence of an appropriate national quality infrastructure an association of small agri-food processes was trained to support their own member processors and farmers on issues such as post-harvest handling food hygiene and safety standards and to carry out quality checks This allowed association members to sell to larger domestic firms that required adherence to national food standards (FAO 2015)

Energy water and environmental services Reform The introduction of international standards for high-quality clean cookstoves facilitated by the Global Alliance for Clean

Cookstoves and ISO gave manufacturers an advantage over low-quality suppliers (Koh et al 2014) Reform There are hundreds of ldquoaguaterosrdquo in Paraguay which are small private water suppliers operating their own wells and

providing piped water to households in areas usually not served by the public operator They are entirely privately financed and appear to be more efficient than public suppliers Government agencies have begun to regularly test the water quality and the aguatero can be shut down if its water fails the test Aguateros compete with each other which has helped keep the prices down (Baker and Treacutemolet 2000)

Reform The market development for low-cost photovoltaic electricity supply in Kenya has been at risk due to the emergence of providers with lower technical standards which caused frequent equipment failures In the absence of national regulation industry associations created their own quality label and assurance process in an effort to secure and grow their consumer base (Baker and Treacutemolet 2000)

Barriers The adoption of low-cost private irrigation technologies has had positive impacts on farmer income in many countries However their unregulated spread has also shown to pose risks to the environment and to make very poor farmers worse off in particularly areas where water is scarce (Fraiture and Giordano 2014)

Barriers Importation of substandard renewable energy systems in Malawi damages their reputation There have been many cases particularly of battery-based solar systems which became non-operative within one year of usage This is partly a result of the lack of a clear legal framework and independent quality checks on imported components due to the unavailability of testing centres for renewable energy (Zalengera et al 2015)

Education Barriers Private low-cost school models in India use para-skilled classroom instructors rather than qualified teachers and operate

in temporary classrooms While such models may be able to operate locally with the approval of municipal or district officials their lack of compliance with national legislation represents a key barrier to scaling up across the country (Monitor Inclusive Markets 2014)

Health and nutrition

Reform In Nigeria an SMS service (lsquoSproxilrsquo) to verify the authenticity of drugs paid for by pharmaceutical companies received a boost when government regulation required such verification for all antibiotics Sproxil was the approved provider (there are now four others) and was influential in creating the case for regulatory change (UNDP and Ashley Insight 2014)

30

Quality standards are a complex field which has a

particularly important but ambivalent relationship

with inclusive business development The

examples above show that the right level of

standard-setting accompanied by capacity-

building for testing and enforcement can boost

consumer- or supplier-focused inclusive business

models but too rigorous or lax quality standards

can prevent inclusive business from scaling up

How a lack of quality standards can affect

inclusive business

Developing a market for new inclusive business

services and technologies can depend critically on

business licensing regimes incorporating

appropriate quality standards This is because

bull low-quality suppliers of a similar product or

service may already dominate the market

making it hard for the poor consumers to

distinguish them from new higher-quality

options without any formal form of

identification or

bull cheaper low quality providers may try to

copy an innovative inclusive business idea86

and damage the reputation of the product or

service They may also have negative

environmental impacts For instance the lack

of quality standards greatly hurt a low-cost

micro-drip irrigation business in India as

multiple informal companies entered the

market offering even cheaper but low-quality

products which reduced farmersrsquo confidence

in drip irrigation as a whole

bull Conversely international standards for clean

cookstoves for example gave manufacturers

to an advantage over low-quality suppliers

How too stringent quality standards can affect

inclusive business

While some quality control is needed too

stringent quality standards can also prevent pro-

poor solutions from scaling up Low-cost and

informal providers that integrate the poor in their

business model can be particularly affected One

86 Koh et al (2014) p79 80

example is the requirement of using certified

teachers which prevents private low-cost schools

in India from operating at a national scale Some

authors suggest a gradual approach to standard-

setting to avoid permanently excluding informal

providers from the market This would include a

gradual tightening in ldquominimum service

standards for major private providers with some

incentives placed on alternative providers to

enter the formal sector and up-grade their

service in the long runrdquo The latter might involve

targeted support to help providers ldquoup-scale

their activities on the condition that they would

fulfil licensing or operating quality

requirementsrdquo87

Which types of standards to focus on

As the examples illustrate relevant standards are

highly sector and business-model specific also

while in some cases a business model might

depend on a single quality standard other

business models may be affected by a range of

different standards and related services along the

value chain (see also the graphical illustration of

the Mango Value Chain at the end of this

section)

Two specific types of standards frequently

mentioned in the context of inclusive business

are voluntary sustainability standards as well as

food safety standards in countries importing from

developing countries

bull Voluntary standards such as organic or

Fairtrade certification are often cited as

means to improve the livelihoods of poor

producers88 There is a growing amount of

research in the value chain development

community which points however to mixed

results Some initiatives have indeed led to

increased prices received by farmers but not

87 Bill Baker and Sophie Treacutemolet (2000) Regulation of Quality of Infrastructure Services in Developing Countries 88 Eg UNDP (2013) Endeva (2013a)

Findings and discussion The role of quality standards and testing infrastructure for inclusive business

31

all of them had an impact on poverty

reduction89

bull The impact of standards set in donor

countries is likely to be highly context-specific

As shown in the example of tighter food

standards in the EU these have supported

inclusive business development in one

country but effectively excluded producers

from export markets in another ndash depending

on the domestic government and industry-

driven initiatives to establish an appropriate

quality infrastructure

Filling gaps in public supporting infrastructure

and enforcement capacity

A lack of government support services and

enforcement capacity can disproportionally affect

inclusive business90 This is because enforcement

capacity can be critical in boosting consumer

confidence in new products or services91 or

represent a pre-condition for maintaining

international market access92 In some cases it

has proven useful to work with the private sector

to fill gaps in government quality services For

example agri-food business associations and

cooperatives can play an important role in

providing training and quality control to local

businesses and farmers to help them target

larger formal buyersrdquo93 Self-regulation of low-

cost solar energy producers in Kenya is another

illustration of this Where government capacity is

very weak supporting commercial testing

laboratories (eg for aflatoxin testing) can be a

viable alternative to public facilities94

Practical implications for practitioners

89 Evidence on fair trade and other sustainability certification can be found in the DCED Evidence Framework 90 See for example FAO (2015) Inclusive Business Models Guidelines for improving linkages between producer groups and buyers of agricultural produce 91 Acumen Bain and Company (2014) p 125 92 Coslovsky (2014) How Bolivian Producers Met Strict Food Safety Standards and Dominated the Global Brazil-Nut Market 93 Ibid 94 One example is donor support to a commercial aflatoxin testing lab in Timor-Leste (source marketdevelopmentfacilityorg and interview with programme staff)

In summary there are numerous examples

showing that appropriate quality standards are a

critical element of an enabling environment for

inclusive business but that suitable reforms will

be highly context-specific

Therefore when faced with an inclusive business

activity a key priority for practitioners is to assess

conditions for scaling early on including

bull whether new quality standards may need to

be developed (eg to shield an innovative

inclusive business start-up from the

competition of low-quality providers) or

bull existing standards need to be removed or

relaxed (eg to allow market entry or

formalisation of an informal inclusive

business model)

Indeed one of the key programming

recommendations by experts in quality

infrastructure development to take a bottom-up

approach and carefully analyse relevant

constraints market dynamics as well as existing

quality standards and services of a government95

This also allows practitioners to develop a holistic

picture of quality infrastructure needs at all levels

of the value chain such as support for producer

training awareness-raising among consumers

certification of inspectors investment in testing

facilities and strengthening enforcement

mechanisms

Many other lessons have been documented in the

field of quality infrastructure promotion which can

serve as a useful reference for inclusive business

programmes ndash for example on choosing the right

partner institutions at government level

effective governance of quality infrastructure

projects or strategies for generating consumer

and company demand for quality services96

95 DCED (2014b) Leveraging the Impact of Business Environment Reform The Contribution of Quality Infrastructure Lessons from Practice by Martin Kellermann and Daniel Paul Keller 96 Ibid

32

Figure 4 Quality standards and testing at the example of the mango value chain (source DCED 2014b)

33

gtgt By laying the foundations for increased private sector activity in a country most elements of lsquostandardrsquo

regulatory reform efforts can be expected to benefit inclusive businesses as well

gtThis includes reducing the costs and risks of doing business by streamlining registration licensing and

taxation processes improving the functioning of the financial sector making it easier to voice constraints

vis-agrave-vis the government or creating conditions for improved domestic or international market access

through land titling or quality infrastructure development

gtgt Some functional areas of business environment reform seem to be particularly relevant for a large

number of inclusive businesses and warrant special policy attention

gt The regulatory environment related to quality standards can represent a binding constraint to inclusive

business A key priority for practitioners is therefore to assess conditions for scaling early on including

whether new quality standards may need to be developed (eg to shield an innovative inclusive business

start-up from the competition of low-quality providers) or whether existing standards need to be removed

or relaxed (eg to allow market entry or formalisation of an informal inclusive business model)

gt Using public-private dialogue platforms (including sector-specific sub-groups) as mechanisms for

feedback and exchange can have particular benefits for inclusive business for example when governments

are not aware of the constraints of innovative business models market entry of inclusive business requires

quite substantial structural reforms in government-dominated sectors (see next section) or governments

aim to implement largely untested or risky policies to promote inclusive business

gtgt Standard national-level reforms are not always sufficient to create enabling conditions for inclusive

business additional reform efforts are typically needed often based on sector analysis and regular

exchanges with individual inclusive businesses to identify and address specific constraints Examples include

gt creating conditions for formalising inclusive business models that started out in the informal sector

removing business licensing requirements that effectively exclude innovative inclusive business models

from the market

gt improving the regulatory environment for impact investing and other new forms of finance of particular

relevance for inclusive business creating regulatory frameworks along inclusive businesses to act as

providers of finance to the poor such as through agent and mobile banking

gt removing binding constraints for core business activities involving land through changes in land

legislation

Summary of findings - Question 1

Are constraints in key functional areas of the business environment different for inclusive business

compared to any other business

34

22 What is the role of new regulation and de-regulation in promoting an


Creating a business enabling environment typically requires combination or suite of measures including sector-

wide de-regulation and removal of inhibitory laws as well as introduction of new laws standards and

regulations Building and expanding on the findings of the previous section this section is framed specifically

around approaches to prioritising and sequencing these different broader types of reform for inclusive business

The objective is to gain a better understanding of overarching regulatory governance frameworks relevant for

inclusive business (ie functional area 5 of business environment reform)

Evidence snapshot Examples of the role of overall regulatory governance and frameworks for inclusive business

National level Cross-sectoral reforms According to FAO (2012) Tanzaniarsquos investment climate improved significantly following various measures to enable greater

private sector participation in the economy and improve regulatory and legal frameworks This included the full or partial privatisation of government-held enterprises promotion of a competitive economic environment and development of the Tanzania Investment Act 1007 which sets out clear criteria for all potential investors and encourages private sector financing Foreign direct investment has increased significantly since the implementation of these reforms including in sectors such as agriculture and fishing These investments were also noted for their role in local job creation

Agriculture Reform Liberalisation of the seed industry in Uganda which had been previously under a government monopoly opened up the

sector to private investors who could partner with public research institutes This resulted in new seed varieties being developed and commercialised that were better suited to local conditions more affordable and accessible to small farmers and created employment opportunities both in seed companies and for contract farming (FAO 2016)

Reform The FIT-SEMA programme recognised the opportunity of a recently liberalised media environment to develop commercial radio which provides market information to farmers The project assists radio stations in developing differentiated information products focusing on business and agriculture The radios attract sponsors by demonstrating audience share As a result 7 million people became regular listeners (74 of adults in mid to low income group) to small business programmes 96 of regular listeners perceived that they benefited from these In addition various business environment reforms have been implemented by the government as a result of the showcasing of issues on radio programmes(The Springfield Centre 2007)

Energy water and environmental services Reform Tanzania has carried out a power sector reform including debundling of state-owned power agency and encouragement

of the private sector Standardized purchase agreements on off-grid feed-in tariffs for small power producers have been introduced Regulatory oversight of the tariff system is now ensured by a new regulatory authority Another agency was created to coordinate grid and off-grid systems in rural areas Donors were actively involved in the energy-sector reform process through financial organizational and legal assistance (Ahlborg and Hammar 2014)

Reform In the water sector in the Philippines or Paraguay inclusive private water suppliers were only able to step in following privatisation of state-owned water provision system (Endeva 2013a)

Reform Mali opened its energy sector to private investment which enabled French energy company EDF to create rural energy-service providers Many smaller companies also began offering energy services in rural areas (Endeva 2013a)

Education Reform In Senegal policymakers recognised the potentially valuable role of the private-education sector in a 2004 amendment to

the countryrsquos overarching education legislation (Endeva 2013a)

Telecommunications

Reform In Uganda it was decided to open up the government-owned telecommunications sector to private providers In order to introduce mobile telephony to the country As building the infrastructure for mobile networks required heavy upfront investment the government initially limited competition to a few telecoms companies This allowed the government to discourage excessive prices while companies were able to recoup the initial investment within a reasonable period of time The sector was opened up to other providers a few years later meaning that prices went down for customers and mobile telephony gradually became more accessible to the poor too (Interview with Jim Tanburn DCED Coordinator)

35

In deciding about the most suitable regulatory and

policy initiatives for inclusive business key factors

to consider include

a) The nature of overarching frameworks for

private sector activity in the country

b) The structure of the specific economic sector

of interest and

c) the stage of the inclusive business model in

question

Three major options for changing regulatory

framework conditions in light of these factors are

outlined below

Laying the foundations for private investment

Developing essential frameworks for private

sector activity if not already in place can be seen

as a precondition for inclusive (and other)

business investment In particular these include

laws that encourage and regulate competition

trade and investment Copyright and trademark

legislation may be critical to enable micro-

franchising in particular97 which allows

entrepreneurs to replicate successful business

models at a small scale and to create business

opportunities for the poor98 The exact priorities

for attracting increased private investment will

however depend on the specific country context

ldquoCreating stronger incentives for private

investment may require improving the

security of property rights in one country

but enhancing the financial sector in

another Technological catch-up calls for

stronger or weaker patent protection

depending on the level of

developmentrdquo99

Similarly even though an active competition

policy is generally considered desirable for

inclusive business development individual cases

may actually require limiting competition for a

short period of time (as illustrated under point 3

below)

97 W Gibson and W Gibb Dyer (2007) Micro-franchising Creating Wealth at the Bottom of the Pyramid p63 64 98 See for example Lehr David (2012) Micro-franchising at the Base of the Pyramid 99 DFID (nd) Growth Building Jobs and Prosperity in Developing Countries

Removing binding inclusive business constraints

in sector-wide regulatory frameworks

Enabling the creation or formalisation of inclusive

business in sectors which are heavily influenced

or controlled by government typically requires

dissolution of government monopolies andor

removing overly stringent regulations and

licensing requirements that stifle competition

Government involvement is a particular problem

in sectors with high potential for inclusive

business such as energy water education

health care or even agriculture In the experience

of Market Systems Development (or M4P)

programmes for example governments often

take on roles that could be performed by the

private sector in a more efficient pro-poor and

sustainable way As illustrated by several of the

above-mentioned examples (eg the water

sector in the Philippines or radio in Uganda)

allowing pioneering businesses to enter

previously government-dominated sectors has in

practice enabled more functional and inclusive

markets

Promoting and regulating inclusive business

growth

The introduction of new regulation ndash such as

relating to price quality or safety standards and

licensing requirements will grow in importance

after an innovation has been introduced It serves

to create the right conditions for scaling up an

inclusive business model to enable its replication

by other businesses and to appropriately regulate

the activity as it increases its market-wide

influence As noted by Acumen Bain and

Company (2014)

ldquoas the [pioneer] firm begins to reach

scale of any significance its interactions

with this system ([including] rules and

regulations []) and other key players

will become more central to its successrdquo

by engaging with the system ldquothey [also]

Findings and discussion The role of new regulation and de-regulation for inclusive business

36

lay the foundation for the market entry of

all subsequent playersrdquo100

Section 215 has already discussed the role of

quality standards for innovative products and

services to protect poor consumers and shield

inclusive businesses from low-quality competitors

GIZ (2014) summarises that

ldquoit is vitally important to strike the right

balance between deregulation in sectors

that were once the exclusive

responsibility of governments and

consumer protectionrdquo101

Even where state-controlled sectors have not

been formally opened to private sector

participation the gradual integration of informal

suppliers into regulated systems can form an

initial step towards more inclusive markets

Venkatachalam (2015) in his study of informal

water markets in urban India for example

argues that the government needs to regulate

informal water suppliers selling to the poor so

that they ldquoplay a fair supplementary rolerdquo to

public services

In addition to quality standards inclusive business

models can be supported through temporary

government measures such as price regulation or

restrictions on competition Business models

which require heavy upfront investment may be

particularly discouraged by the prospect that

returns may flow to competitors Limiting market

entry by other firms until costs have been largely

recovered may be the only way to encourage a

business to invest A need for new regulations

and oversight also arises often following

privatisation of government-owned utility

companies in order to ensure fair pricing for

consumers

100 Acumen Bain and Company (2014) p11 101 GIZ (2014)

Practical examples of sequencing and combining

de-regulatory and regulatory changes

An interesting illustration of how step 2 and 3 can

fit together in a sequenced approach is the

introduction of of mobile phone networks in

Uganda While views may vary on whether this

particular case represents an inclusive business

model the main point here is to illustrate how

regulatory frameworks for inclusive business may

need to be adapted and changed over time

Sequencing de-regulation and different regulatory frameworks over time Mobile phone networks in Uganda

In order to introduce mobile telephony to the country the Ugandan government decided to open up the telecommunications sector to private providers As building the infrastructure for mobile networks required heavy upfront investment the government initially limited competition to a few telecoms companies This allowed the government to discourage excessive prices while the companies were able to recoup the initial investment within a reasonable period of time The sector was opened up to other providers a few years later meaning that prices went down for customers and mobile telephony gradually became more accessible to the poor too102

It is also important to keep in mind that regulation

is multi-dimensional as different elements of a

business model will require different regulatory

responses A World Bank Group report on small

energy producers in Africa offers useful advice in

this regard Whenever policy makers face a new

technology or business model any regulatory

changes should be based on a clear and nuanced

economic rationale

ldquoShould this entity be regulated

deregulated or regulated in a different

way Why regulaterdquo rdquoIt is important to

remember that regulation is not an all-or-

102 Interview with Jim Tanburn DCED Coordinator

37

nothing proposition [it] is

multidimensionalrdquo103

This is illustrated below at the example of

micropower business delivering electricity to

rural areas

A multidimensional perspective on regulation needs The OMC Micropower example104

The Omnigrid Micropower Company (OMC) OMC is one of several companies in India that propose to sell electricity to mobile-phone tower owners or operators using hybrid generation (for example solar and diesel) A key element of the business model is that the enterprise will also provide energy services to surrounding villages by renting rechargeable battery boxes lanterns and appliances to households and businesses Several companies are considering introducing a similar business model in rural Africa If this happens African electricity regulators will need to decide whether or not to regulate these companies And if there is regulation what should be regulated In sum they need to decide whether the following elements of regulation are necessary

bull Tariff regulation which entails approving (a) the prices that the enterprise proposes to charge for the sale of electricity to tower owners or operators and (b) the leasing charges for daily weekly or monthly rental of precharged battery boxes lanterns and other appliances bull Licensing which entails requiring the enterprise to obtain a license or permit to operate and bull Safety regulation including safety rules for some or all business operations

The recommendations made for this type of enterprise are No tariff regulation Registration of the business for information purposes but no requirement for regulatory approval of a license or permit Certification of the safety of the battery boxes by an international safety-testing laboratory as well as application of safety regulations that would apply to similar electricity suppliers

103 The World Bank Group (2014) From the bottom up how small power producers and mini-grids can deliver electrification and renewable energy in Africa 104 Adapted from The World Bank Group (2014) p 72-75

Implications for practitioners

Requirements for regulation and de-regulation are

context-specific multi-dimensional and will

change over time As a result sectoral analysis

and direct interaction with relevant business

sometimes involving technical experts is likely to

be necessary in order to identify the most

suitable reform approaches

There are also likely to be differences between

least developed and more advanced developing

economies Facilitating inclusive business in very

low income countries will often require working

on all fronts at the same time ndash with more efforts

going into the development of basic conditions

for private sector investment alongside sector-

or business-specific initiatives There is also likely

to be a need for more targeted support to

lsquomarket-buildingrsquo activities such as capacity

building and financing (see section 23-26 for

more discussion of targeted measures)105 In

more advanced developing economies a focus

on reforms for specific inclusive business models

and sectors will be more realistic Indeed given

the market-wide challenges in least-developed

countries most inclusive business examples are

currently found in lower middle income

countries according to a survey conducted by

UNDP106

105 Internal background not on inclusive business in low-income developing countries UNDP 106 Interview with Sahba Sobhani Global Programme Advisor ndash Private Sector UNDP

38



Evidence snapshot Examples of legislation on special corporate forms and its impact on inclusive business

National cross-sectoral level (Note that definitions of new legal enterprise forms vary by context some legal concepts require all profits to be invested into social activities which is not a core area of interest of PSD practitioners)

Reform The Philippines are currently developing an accreditation system for Inclusive Business (Practitioner Hub for Inclusive Business

2016) Earlier the Philippine government also issued the lsquoMagna Carta for social enterprisersquo which introduces the legal form of social enterprises as ldquoorganisations (that) generate profit with due regard to social and environmental costs and make a pro-active contribution to resolving social and environmental problemsrdquo (Congress of the Philippines 2012) No evidence is available yet on the impact of these initiatives

Reform 30 US states have passed legislation to introduce the new legal business form of benefit corporations which 1) have an

expanded purpose beyond maximizing share value to explicitly include general and specific public benefit 2) are required to considerbalance the impact of their decisions not only on shareholders but also on their stakeholders and 3) are required to publish an annual benefit report (Benefitcorpnet) Total numbers of benefit corporations seem to remain relatively small (Social Impact Hub 2014) Many other countries have similar legislation for social enterprises (eg community benefit companies in the UK)

Note that only limited evidence seems to be available on the social impact of different statutory forms and the findings are mixed This will be explored in more detail in a forthcoming DCED paper focusing on the role of business structure for social impact

39

Creating special statutory forms or voluntary

accreditation systems for business with social

objectives is an emerging activity for many

governments and a common policy

recommendation in the inclusive business

literature So far such legislative changes have

been primarily pursued in high-income countries

Examples include legislation on lsquobenefit

corporationsrsquo which pursue both profit-

maximising and social objectives (eg in the US)

or social enterprises (eg in the UK Italy or

Belgium) Experiences in developing countries

are more limited and legislation focusing on

Inclusive Business in particular is only a nascent

area of activity As such the Philippines are

currently developing a voluntary accreditation

system on Inclusive Business

Arguments made in favour of special legal forms

Evidence on the impact of more established

statutory forms such as benefit corporations and

social enterprise seems to be limited as such it is

unclear whether companies adopting such legal

forms perform significantly and consistently

better in terms of social impact compared to

other business Yet a number of arguments are

made in favour of special legal forms

bull Legal structure may influence how

companies make investment decisions and

balance financial and social objectives

Benefit corporations for example are seen

to provide legal backing for boards that wish

to consider societal impact in addition to

shareholder interest107

bull Accreditation or legal forms may also offer a

basis for increased government support and

investor exposure in the future

o The Philippinesrsquo accreditation system aims

to facilitate targeted financial support and

other public incentives at inclusive

business (see section 252 for further

discussion)

o The UK has established the first social

stock exchange for businesses aiming for

107 httpbenefitcorpnetfaq

positive social or environmental impacts

and provides a mechanism for linking up

likeminded investors with businesses

bull BCorps and other legal forms for business

with a social mission also have special

reporting requirements which include the

preparation of an annual report about the

social impact achieved While this represents

an extra cost for businesses108 it may be an

additional asset for donors or impact

investors interesting in working with them

Critical perspectives on the need for special legal

forms

Skeptics argue that the legal form or accreditation

of a company does not actually influence its

mission or ability to achieve social impact One

argument is that ldquoas a general rule existing

benefit corporations already tend to be

concerned with sustainability and often already

have a social missionrdquo109 before they decide to

change their legal status In the same vein it is

argued that special legal formats might create a

ldquofalse dichotomy between lsquogoodrsquo and lsquobadrsquo

companies when there is no legal reason that

all companies canrsquot consider a wide range of

interests [in their investment decisions] ndash and

could be encouraged to do sordquo110

ldquo[Corporate decision-making is largely a

function of corporate choice rather than

corporate lawrdquo 111

It is also unclear if special legal forms or

accreditation systems can indeed offer an

effective and easy way for governments and

donors to target financial incentives more

effectively at inclusive business This would

require agreement on a general and measurable

definition of what an inclusive business is and

isnrsquot rather than a sectoral or case-by-case

approach to allocating support Indeed

governments have been able to facilitate and

108 Doug Bend and Alex King (2014) Why consider a benefit corporation Article on forbescom 109 Article in The Guardian 21 November 2013 110 Noam Noked Harvard Law School Forum Blog 2012 see also The Economist 2012 and Alexander 2014 111Noam Noked Harvard Law School Forum Blog 2012

Findings and discussion The role of special forms in corporate law and accreditation systems for inclusive business

40

support private investments to sectors of high

relevance to the poor without introducing a legal

concept of lsquoinclusive businessesrsquo For example

the Senegalese government prepares reports

outlining key policies and business opportunities

in priority sectors including agriculture and agri-

business tourism fishing health care and

others112 The Senegalese Investment Code

(2004) also provides for tax and other incentives

to investments in these sectors as well as special

benefits to investments that generate at least

200 jobs or that take place in locations outside

the capital city113 Similarly incentive schemes are

in place in other countries114 While specific

evidence on the results of such schemes could

not be identified for this paper they represent a

lsquotried and testedrsquo approach to directing financial

resources to inclusive growth opportunities

Practical ways forward

In summary it is clearly debatable whether or not

special legal forms or accreditation systems for

inclusive businesses should be part of donor-

supported regulatory reform for inclusive

business While monitoring the results of new

initiatives such as in the Philippines will be crucial

to understand their role for inclusive growth

there are also other practical ways forward

112 Senegal Investment Climate Statement 2015 113 Dalberg (2012) Senegal Investment Climate Statement 2015 114 See for example FAO (2012)

bull Research on already existing forms of business

and how these affect their social impact or

lsquoinclusivenessrsquoGenerally speaking businesses

can be distinguished not only by their statutory

form (including the standard company form

benefit corporations social enterprises or

cooperatives) but also their corporate

governance and ownership models (such as

employee-ownership) All of these elements of

business structure may play a role in how

inclusively companies are governed how

innovative they are and how they balance social

and financial objectives The DCED is currently

engaged in more in-depth research on this topic

and will publish the findings separately If certain

business structures are indeed found to influence

social impact governments and impact investors

could explore using these as a criterion for

support in the future115

bull Supporting governments in sharing market

information about sectors with inclusive

growth potential and making provisions for

incentive schemes in national investment law

This may include building the capacity of

investment agencies in conducting research

and producing sectoral reports targeting

potential investors in priority sectors and

advising government on including

appropriate sectoral tax or other incentives

in the national investment code

115 See also Erinch Sahan (2015) Impact Investment Hype v Substance the importance of ownership and the role of aid Blog post on Oxfam From Poverty to Power

1

B Interventionist strategies

gtgt As in the case of other businesses both de-regulation and new regulatory initiatives can be required to

enable inclusive business For inclusive business the following sequence and combination of different reform

types of seems to be of particular relevance

gt Identifying priorities for reform in the overarching laws regulating private investment land access trade

and competition etc

gt Reviewing the structure of specific economic sectors relevant for inclusive business and their openness to

private investment and competition State-owned monopolies and government involvement represent

particularly common binding constraints for inclusive business in sectors such as agriculture health

energy As noted under Question 1 there may also be specific registration licensing or other binding

constraints for individual inclusive business models even if a sector offers opportunities for private

investment

gt Working with individual inclusive business to identify regulatory requirements for scaling up The growth

and sustainability of inclusive market entrants often requires new regulatory frameworks ndash such as in the

area of quality and consumer protection standards or tariff regulation

gtgt Programmes need to be clear that regulation is not a one-off intervention it is multidimensional and

will need to be changed over time to respond to business risks and opportunities at different stages of

business and sectoral development

gtgt Evidence on the effectiveness of special statutory forms in corporate law or voluntary accreditation

systems for inclusive business is limited

gt At a conceptual level the rationale for such measures is still debated It is unclear for example

whether such measures make it easier for business to defend social objectives internally or to

shareholders or whether they make it easier to attract government donor and investor support

gt Separate ongoing research by the DCED seeks to further explore the role of business structure

including its statutory form for social impact

Summary of findings - Question 2 What is the role new regulation or de-regulation

for inclusive business

Summary of findings ndash Question 3 Are legislation on special corporate forms or

voluntary accreditation systems instrumental in promoting inclusive business

42

B Debates and lessons on interventionist strategies

43

While efforts in the functional areas of business environment reform are critical elements of inclusive business development additional support

measures are often required The following sections therefore also integrate experiences with interventionist government strategies

Specifically the objective is

bull to compare competitively neutral policy options with targeted support to businesses or sectors and explore existing lessons on effective

practice (24) and

bull to discuss diverging viewpoints experiences and lessons related to different types of interventionist approaches (sections 25 and 26)

In this section

24 What is the appropriate level and type of selective government interventions vis-aacute-vis inclusive business Evidence ndash Findings and discussion

Summary of findings


Evidence ndash Findings and discussion Summary of findings 26 Are mandatory rules and preferential criteria on inclusiveness an effective means to promote pro-poor growth


44

24 What is the appropriate level and type of selective government interventions

vis-aacute-vis inclusive business

Evidence snapshot Examples of the impact of targeted financial support and incentives on inclusive growth

National cross-sectoral level Reform Many developing countries have had some success in attracting Foreign Direct Investment into key economic sectors

including agriculture after introducing general incentives including tax exemption tariff reduction on equipment and machinery imports subsidy etc (FAO2012) Reform A major review of donor-funded public-private partnerships in developing countries shows that the evidence base for

public subsidies to business is scarce and rarely relies on sound or robust empirical counterfactual evidence (Netherlands Ministry of Foreign Affairs 2013) Several other studies show that few partnerships (such as through challenge funds) have demonstrated results for the poor at impact level (incomes jobs) (DCED 2013 Evaluations of donor-funded partnership facilities)

Agriculture Reform In Mozambique SABMiller sources most of its Cassava from local subsistence farmers The government offered tax

incentives to lsquocompensatersquo for regulatory gaps and insecurities (Parmigiani and Rivera-Santos 2015) Barrier The Indian government subsidy-based agricultural policy is seen as a key barrier to long-term economic sustainability and

agricultural productivity growth In some states it provides free electricity to farmers alongside subsidised water seeds chemical inputs and transport and guarantees purchase by the government of most of the wheat and rice produced While this has resulted in increased agricultural production the growth in yields has not matched with an increased demand farmers have no incentive to improve productivity and have thus become dependent on the subsidies to sustain their production and incomes (Singh 2015)

Barrier and reform In Nigeria ill-aligned incentives among actors in the fertiliser market to serve poor farmers were created by the public subsidies procurement and distribution As a result poor farmers were never targeted by fertiliser companiesrsquo sales efforts Even those who had access to fertiliser struggled to pay for the high price or did not know how to use it properly (Propcom 2011)

Education Reform Sales of low-cost data tablets by the company Data Wind in India has been boosted by the governmentrsquos subsidisation of

mobile tablets in an effort to improve the quality of and access to education For supply to students the government not only waives duties and taxes but also subsidises the cost by 50 for the first edition of DataWindrsquos educational tablet The government also directly procures from Data Wind to build the consumer market and makes up 20 of Data Windrsquos sales (The Guardian 2014)

Energy water and environmental services Barrier Mercy Corps Energy For All (E4A) program in Timor-Leste aimed to facilitate market actors to build a sustainable market

for solar energy products for low-income populations One of the key bottlenecks initially encountered in developing the market was the governmentrsquos free distribution of solar home systems to several thousands of households Uncertainty over who would receive free systems created reluctance among households to pay for the low-cost solution

Reform and barriers In Malawi duty and surtax waiver on the importation of renewable energy technology equipment helped to reduce capital cost and could in principle enhance the affordability of renewable energy systems such as solar home systems However surveys carried out in some parts of Malawi found that retailers did not reflect the tax waiver in retail prices meaning that renewable energy systems remain at prohibitive prices Legal instruments are required to address such abuse of tax waivers

Reform The Kenyan government removed the tax on imported raw materials to encourage the local manufacturing of solar panels which was expected to reduce the costs for consumers (Lighting Africa 2011) Later the government also scrapped VAT on solar products leading to a significant cost reduction of solar lights and phone chargers (businessgreencom 2014)

Reform A study of eight public-private partnerships in renewable energy provision shows that these collaborations have expanded access to energy services to the poor (Sovacool 2013)

Reform In some East African countries import duties on solar products are relaxed on a case-by-case basis and necessitate an application and representation to the local ministry of renewable energy (IFC 2015)

45

Alongside regulatory reform the literature on

inclusive business is rich in references to industry-

or firm-specific policy measures such as subsidies

at company or target group level tax waivers or

preferential public procurement116 They are

typically referred to as effective policy options for

promoting inclusive business Evidence on such

interventionist measures is however very mixed

and they are subject to significant debate in

economic development circles In particular

there is a potential for conflict between

interventionist approaches and functional areas

of business environment reform They also tend

to require different sets of expertise This section

explains the differences as well as possible

synergies between these communities of practice

with the view to inform the design of inclusive

business programmes

The fundamental debate

lsquoPuristrsquo advocates of business environment reform

argue that levelling the playing field for all market

actors and sectors is the best way to promote

competitive growing and ultimately more

inclusive markets117 Hence their

recommendations typically include improving the

regulatory environment for all firms and

removing subsidies In addition acting as a

lsquoneutralrsquo facilitator that can help bridge

information gaps or create links between

companies and low-income communities118 is

seen as a desirable government function Wider

government strategies including active

competition policy and innovation policy

resonate well with traditional principles of

business environment reform Various studies

116 See for example Endeva (2013a) GIZ (2013) UNDP (2014) UNDP and Ashley Insight (2014) Breaking Through Inclusive Business and the Business Call to Action today - Mapping challenges progress and the way ahead 117 GTZ (2007) Driving Business Environment Reforms through Private Sector Development Strategies ndash The Cases of Ghana And Namibia ADB (2010) Regulatory Reforms for Improving the Business Environment in Selected Asian Economies- How Monitoring and Comparative Benchmarking Can Provide Incentive for Reform 118 See for example IADB (2016) Transforming business relationship Inclusive Business in Latin America

have also referred to these as critical frameworks

for promoting inclusive business and pro-poor

growth119

Conversely selective incentives to particular

groups of enterprises or industries are considered

as inherently risky and market distorting120 They

potentially provide perverse incentives to badly

performing business disadvantage others and

risk undermining economic competitiveness in

the long run Subsidies may also primarily benefit

well-capitalised businesses rather than the

poor121 In particular where governments lack

the capacity to design and monitor such selective

policies or where patrimonial systems increase

the risk of capture by special interest groups the

choice of beneficiaries may be flawed and

ineffective support may not be withdrawn122

Another common argument against targeted

incentives is that they are unsustainable For

instance government incentives may be effective

in enabling companies to integrate smallholder

farms into their supply chains through contracts

but increase the vulnerability of companies and

farmers alike if the incentive policy is removed

prematurely123

Still other practitioners such as advocates of

industrial policies argue that in all fast-growing

countries that have managed to reduce poverty at

scale ldquothe state has played a much more active

role than merely the creator of lsquolevel playing

fieldrdquo124 ndash for example by providing subsidies and

performance rewards to businesses and

119 See for example UNCTAD 2015 The role of competition policy in promoting sustainable and inclusive growth and GIZ (2014) 120 UNIDO and GTZ (2008) pix ADB (2010) p38 121 See the example of Indian agricultural subsidies in Singh (2015) 122 See also DCED (2015) Private Sector Development Synthesis Note Current Debates on Industrial Policy 123 FAO (2013) Contract Farming for Inclusive Market Access 124 SECO (2011) The Role and Effectiveness of SECO Cooperation in Business Environment Reform Independent Evaluation

Findings and discussion The role of targeted government interventions for inclusive business

46

industries with significant growth potential125 It

has also been well documented that inclusive

business may require targeted support as they

can face high start-up costs long payback times

or unviable rates of returns in the short run126

What the evidence says

In practice there is evidence both in favour and

against the use of interventionist instruments for

inclusive business Badly designed government

interventions frequently act as an effective

barrier for inclusive market development and

productive growth as illustrated by the

agricultural sector in India fertiliser market in

Nigeria or solar lighting market in Timor-Leste At

the same time well defined and managed

incentives can be instrumental in supporting the

development of innovative and inclusive business

solutions A review of member companies of the

Business Call to Action (BcTA) concluded that

ldquomany examples of BCtA initiatives

[benefit] from positive government

support [including] tendering and

procurement subsidised provision of

goods and services waivers of taxesrdquo127

Some examples in the evidence snapshot also

indicate that tax incentives on production inputs

for inclusive technologies (such as in renewable

energy) might be able to stimulate the market In

some countries such incentives seem to be

granted on a case-by-case basis making it more

likely that they are deployed in response to a

specific need There are also a number of case

studies demonstrating how matched funding

from governments (donors or partner countries)

and other types of partnerships have been

125 For further discussion of debates on industrial policy please refer to the DCED Synthesis Note on the topic 126 See for example IIED (2014) 127 Tomohiro Nagasaki and Lara Sinha (2014) Five strategies for scaling up inclusive business at the base of the pyramid Business Call to Action article on The Guardian Full report BcTA (2015) Breaking through Inclusive business and the Business Call to Action today - Mapping challenges progress and the way ahead Note that potential negative distortionary effects on relevant sectors have not been assessed as part of the report

instrumental in enabling the integration of low-

income groups into companiesrsquo supply chains

Lessons on designing effective interventions

Fundamental debates about the appropriate role

of government are likely to continue and beliefs

will influence the way existing policy experiences

are interpreted For example as Khan (2014)

points out the rise of Bangladeshs garment

industry is used to show both that industrial

policy works and that lsquolevelling the playing fieldrsquo

works128 Given this context what could be

practical lessons for creating an enabling


One way to reconcile traditional business

environment reform approaches with industrial

policy would be to focus on some common

denominators between the two A DCED working

paper on this topic notes that traditional

regulatory reform can be considered compatible

with ldquostrategic industrial policyrdquo This approach

focuses on horizontal (non-selective) and market-

supporting interventions that shift the allocation

of resources in an economy towards new

dynamic activities in any sector and encourages

public-private dialogue to identify areas to be

supported129

ldquoHorizontal industrial policy interventions

have the same goal as regulatory and

legal reforms They offer incentives or

public goods equally to all firms [in order

to improve] the functioning of marketsrdquo

Based on DCED (2014) key principles for creating

synergies between business environment reform

and industrial strategy supporting innovative

inclusive businesses could include130

bull Public-private dialogue Both business

environment reform practitioners and

supporters of strategic industrial policy place

a great emphasis on broad-based dialogue

128 Mushtaq Khan (2014) The Industrial Policy Governance Challenge Workshop Presentation 129 DCED (2014c) Business Environment Reform and Industrial Policy Are they compatible 130 DCED (2014c)

47

between the government and the private

sector This serves to get regular feedback

from business on opportunities and

constraints for inclusive growth

bull Clear economic rationale for intervening In

addition to social objectives any

intervention should be linked to a clear

economic rationale in terms of what

problem is to be overcome and why the

intervention is the best option to do so

Public funds are best invested in innovative

high-risk but potentially high return

activities

bull Broad-based (horizontal) support

Subsectors activities or technologies should

be favoured over individual firms Any funds

accessible to the private sector should aim

to treat all firms equally such as based on

an open competition

bull Time-bound support In particular where

direct business subsidies seem to be

justified Singh (2015) stresses that they

should be given as a one-off help or for a

short period of time

Subsidies on continuing basis should be

avoided

bull Transparency There should be transparency

in the regulatory environment as well as any

pro-active incentives offered to companies

In the case of financial incentives cost-

sharing with the private sector should be

used to ensure a lsquobuy-inrsquo

bull Results-based management of support

Financial incentives should be linked to

performance or implementation of agreed

measures (eg training of workers or

infrastructure investments) and be

terminated if the desired results are not

achieved

Similar lessons have emerged from the market

systems development or M4P community While

programmes in this field often support individual

pioneer business there is a clear economic

rationale underlying support support is time-

bound and in many programmes combined with

regular results monitoring and there is a longer-

term plan for encouraging wider sectoral

development beyond the individual partner

business

The box below summarises some specific interventions that would be compatible with these principles ndash and

that PSD practitioners could use to support innovative inclusive businesses

Examples of donor-supported strategic interventions for inclusive business compatible with business environment reform (adapted from DCED (2014) Business Environment Reform and Industrial Policy)

Encouraging the formation of andor providing technical assistance to sectoral business associations and an

overarching apex association with thematic subcommittees Encouraging regular mechanisms for dialogue between the apex association and the government Gathering and sharing information about the regulatory and policy regime Conducting regular firm-level surveys to solicit feedback on inclusive growth constraints Combining any support to sectoral associations with measures to strengthen the competition agency ndash which

would also have a central role in assessing funding bids from business associations or companies (see below) Advising governments on financial support to new investments by inclusive business (eg for feasibility studies

infrastructure training or research) or options for the provision of risk capital such as through a public venture capital fund or a development bank Where the capacity to set up such a scheme is lacking governments can create a guarantee fund which provides loan guarantees to commercial banks lending to specific types of investors

Advising governments on tax incentives A lower rate of profit tax could be applied to any product or service genuinely new to an economy

Training public officials in techniques and data gathering necessary to assess investment priorities and reform at the sector level

48

gtgt While subsidies and other interventionist approaches are often mentioned side by side with competitively

neutral approaches to inclusive business development they are underpinned by contrasting perspectives on

how countries can achieve pro-poor economic development Targeted support to sectors and businesses is

viewed as essential to development by one group and as prone to government failure and

mismanagement by the other

gtgt In practice the evidence shows that badly targeted or managed government subsidies often act as an

effective barrier for long-term inclusive growth while well-designed and -monitored incentives to specific

sectors or business can effectively stimulate their growth

gtgt PSD programmes promoting inclusive business can learn a lot from the big body of research on industrial

including effective policy options and risks ndash but so far interaction has been the two communities has been

limited

gtgt In particular there are many common denominators between strategic or lsquohorizontalrsquo industrial policy

support and business environment reform which practitioners can harness to enable and encourage inclusive

business

gt This involves developing a clear economic rationale for any subsidies soliciting policy feedback

through public-private dialogue making support time-bound and dependent on results and

favouring sub-sectors or activities over individual firms

gt Appropriate support options include among others research support and capacity building of

sectoral business associations strengthening competition agencies and training of public agencies

involved in targeted incentives and advice on activity-specific grants risk capital credit guarantees

and tax incentives granted by the government

Summary of findings ndash Question 3 What is the appropriate type and level of selective

government interventions vis-agrave-vis inclusive business (General discussion)

49

25 Should targeted support strategies prioritise criteria of social impact or

productive growth

Targeted support to businesses sectors or industries requires quantitative or qualitative eligibility criteria

The inclusive business and industrial policy literature do however differ in their suggested strategic focus

and support criteria This section unpacks this apparent tension between the two communities of practice

and draws conclusions for practitioners

Evidence snapshot Examples of ways in which countries have achieved pro-poor growth

Note that there is an extensive body of literature in this field partly with contradictory evidence A few selected experiences and seminal research are highlighted below emphasizing the importance of productivity-led growth for poverty reduction National-level cross-sectoral reform

Gutierrez et al (2007) find strong evidence that the sectoral pattern of growth and its employment and productivity-intensities matter for poverty reduction While employment-intensive growth in the secondary sector (manufacturing construction mining and utilities) is correlated with poverty reduction employment-intensive growth in agriculture is correlated with increases in the poverty headcount On the other hand productivity-intensive growth in agriculture is significantly correlated with poverty reduction whether through increases in sectoral productivity or through the movement of workers into other sectors In other words across the countries studied the secondary sector seems to represent a repository of ldquomore productiverdquo jobs while agriculture is associated with lower productivity on average (adapted from Hull 2009)

A study by ILO (2004) suggest that labour productivity growth in agriculture has a critical role in poverty reduction Similarly an overview of several country and cross-country studies illustrates the consistent finding that agricultural productivity is important for poverty reduction (Schneider 2011)

China alone has lifted over 450 million people out of poverty since 1979 Evidence shows that rapid economic growth between 1985 and 2001 was crucial to this enormous reduction in poverty (Lin 2003) India has seen significant falls in poverty since the 1980s rates that accelerated into the 1990s This has been strongly related to Indiarsquos impressive growth record over this period (Bhanumurthy 2004)

50

As noted in the previous section some

communities of practice assert that real economic

growth and poverty reduction cannot be achieved

without industrial policies that is

ldquoefforts to alter industrial structure to

promote productivity-based growthrdquo131 or

ldquoany selective intervention or

government policy that attempts to alter

the structure of production towards

sectors that are expected to offer better

prospects for economic growth than

would occur in the absence of such

interventionrdquo132

Proponents argue that todayrsquos rich countries and

East Asian economies such as China or South

Korea have achieved economic growth and

large-scale poverty reduction precisely because

of such targeted government initiatives

According to ODI (2013) industrial policy

(especially if targeting agro-industry and light

manufacturing) still remains the most viable

option for countries to achieve structural change

move up in the global value chain and create

employment and incomes for the poor 133

Success factors of traditional industry strategy

While there is extensive research on the various

governance factors that influence the success of

industrial strategy there is widespread agreement

on key criteria for allocating and managing

support These include

a) targeting support at sectors with high

productive growth potential

b) making subsidies to companies conditional

on export (or other economic) performance

and

c) ensuring timely withdrawal of support from

non-performing companies134

131 The World Bank (2007) The East Asian Miracle 132 Howard Pack and Kamal Saggi (2006) The case for industrial policy A critical survey 133 ODI (2013) Growth Employment and Poverty in Africa Tales of Lions and Cheetahs 134 See for example Sanjaya Lall (2000) Selective Industrial and Trade Policies in Developing Countries Theoretical and Empirical Issues Mushtaq Khan (2014) The Industrial Policy

Industrial strategy proposals for inclusive business

Meanwhile some organisations in the inclusive

business community now explicitly call for new

forms of industrial policies targeted at inclusive

business According to APEC (2015)

ldquogovernments need to encourage more

business to come up with inclusive

solutionsrdquo such as by ldquoprioritising

inclusive business models in industry

support programmes and policiesrdquo 135

Several countries including India Indonesia and

the Philippines are already exploring ways to

target their industrial policies better at inclusive

businesses in practice136 Also some African

states have used ldquosubsidies to reward social

benefits associated with business activitiesrdquo137

While there is no general agreement on

threshold criteria for inclusiveness (see section

11) one of the policy measures presented as

one of the ldquomost pioneering stepsrdquo138 at the

ADBrsquos 2016 Inclusive Business in Asia Forum139 is

a business accreditation system which is being

set up by the Philippine government It serves to

identify the level of social impact commercial

viability and innovation ex-ante based on sector-

specific criteria140 and ldquoto then align existing

industry policies to prioritize accredited inclusive

business firmsrdquo141 This is further outlined in the

box below

Governance Challenge Dani Rodrik (2013) The return of industrial policy 135 APEC 2015 About Inclusive Business 136 Mareike Grytz (2016) 137 UNDP (2013) p 41 138 ADB (2016) 139 Website of the 2nd Inclusive Business Forum for Asia February 2016 140 Mareike Grytz (2016) 141 Armin Bauer (2016) Unlock solutions for the poor through inclusive business innovations

Findings and discussion Which types of businesses should be targeted by interventionist strategies to achieve inclusive growth

51

Summary of assessment criteria proposed for the Philippinesrsquo Inclusive Business Accreditation System142

The evaluation tool scores companies based on the following sets of criteria

bull Financial viability examines the business case for the project

bull Social impact covers the engagement of the BoP within the project measured in terms of reach depth and systemic solution Reach is measured by number of beneficiaries Depth pertains to the size of the benefit Systemic solution focuses on the relevance of the business model in addressing income or human development gaps in a specific area as well as the commitment towards disseminating the model to other key players

bull Innovation refers to Business innovation (Measures to increase profitability for company and promotion of good governance) Social innovation (Measures to increase positive social impact) and Environmental innovation

bull In the case of agribusiness143 the weight of Social Impact is 55 while that of Innovation is 15 and that of financial viability 30

Such initiatives represent a clear shift in the

language rationale and strategic principles

underlying successful examples of past industrial

strategies In general social impact seems to be a

key criterion for targeting support In the specific

example of the Philippines Inclusive Business

Accreditation System Social impact is

consistently given a higher weight in ex-ante

assessments (55) than innovation (15) or

financial viability In addition the criteria used to

assess innovation and financial viability largely

relate to company profits and governance as

well as social and environment impact Overall

criteria that would be prioritised in traditional

industrial policies such as strategic importance

142 Adapted from Roehlano M Briones (2016) Growing Inclusive Businesses in the Philippines The Role of Government Policies and Programs 143 No information could be found on the weighting proposed for other sectors

of the target sector for productive growth and

businessesrsquo commercial or export performance

therefore seem to be lower in the priority list of

such inclusive business policies While it is

unclear whether strategies prioritising social

impact would replace or simply complement

other industrial strategies it is a critical question

how governments can deploy resources in the

most strategic way for poverty reduction

Risks associated with strategies prioritising social

impact

Although there is not enough experience with

industrial policies prioritising social impact in

order to judge their effectiveness a critical review

suggests that they actually risk having negative

impacts on pro-poor growth One reason lies in

how social impact is defined in practice The

Philippinersquos Inclusive Business Accreditation

System is likely to assess systemic social impact

partly based on the companyrsquos commitment to

share their business model with others Especially

if required in the short-term this might however

put the financial viability of the business model at

risk Another reason is that a social impact focus

risks diverting support from productive economic

sectors which have strong poverty reduction

potential in the medium term Altenburg (2011)

points out that

ldquonot every industrial policy that targets

needy producers is actually goodrdquo as

these may actually ldquoreduce aggregate

productivity by distorting the allocation

of resources especially if they support

firms with weak business models Trades-

off between growth and distribution need

to be balanced carefullyrdquo 144

In the words of DFID ldquopoorly targeted subsidies

[can] hamper growth by redirecting capital away

from where it is most productiverdquo145 A parallel

can be drawn to the funding criteria of impact

144 DIE (2011) Industrial Policy in Developing Countries Lessons from seven country cases 145 DFID (nd) Growth Building Jobs and Prosperity in Developing Countries

52

investment funds According to an empirical

review covering several African countries

investment funds typically limit their choices to

businesses operating outside the manufacturing

sector which is however often considered as the

key to achieving long-term economic

development Most of the lsquoinclusiversquo businesses

supported by these funds served solely as

distributors of imported finished and semi-

finished products partly due to the high cost of

manufacturing locally146

Not necessarily an lsquoeither orrsquo

There are options for avoiding trades off between

social impact and productive growth In relation

to the specific example above impact investor

choices could be usefully broadened to include

businesses in the manufacturing sector

complemented by regulatory reform (eg to

reduce the high cost of importing component

parts or to lower taxes)147 More generally

Altenburg (2011) argues that governments can

identify ways to ldquopromote structural change in a

way as to enhance competitiveness and

productivity growth while increasing the

incomes of the poor more than

proportionallyrdquo148

Such lsquoinclusive industrial policiesrsquo go beyond

stimulating productive growth and may involve

bull a focus on labour-intensive industries149 and

productivity-enhancing practices of

agribusiness150 involving the rural poor while

maintaining a focus on economic

performance criteria for managing incentives

(as in proven industrial strategies)

146 Ngoasong (2015) 147 Ibid 148 DIE (2011) 149 DIE (2011) 150 Gutierrez et al (2007)

bull safeguards for vulnerable groups151 eg by

promoting labour standards and improved

working conditions for women and men or

bull the strengthening of backward linkages152

between larger firms benefiting from state

incentives and local intermediaries or

suppliers involving the poor

In a similar way extensive studies of growth

experiences in Africa and Asia by Fox (2014) and

Studwell (2014) suggest that government in

developing countries should pursue two

complementary strategies

bull Creating conditions for increasing agricultural

productivity and improving incomes of rural

households and

bull nurturing export-oriented high-growth and

labour-intensive manufacturing153

An increased focus on such strategies does not

imply that donor and government support should

not be directed at pro-poor business models in

other sectors too ndash in particular if they are highly

innovative and show clear potential for

commercial viability However a broad strategic

focus on social impact criteria in industrial

support programmes risks failing to produce the

desired long-term effects on inclusive growth

151 httpwwwdie-gdideuploadsmediaDP_42011pdf 152 Ibid 153 Louise Fox (2015) What is the private sector challenge in low-income countries An African perspective Presentation given at the 2015 DCED Annual Meeting Joe Studwell (2014) How Asia works

53

26 Are mandatory rules and preferential criteria on inclusiveness effective means to


One specific set of strategies under the overall umbrella of interventionist approaches which merits separate

discussion is the use of mandatory criteria rules and regulations that on the inclusion of low-income

populations in business models These are frequently proposed as an effective way for governments to

promote inclusive growth154

154 Eg Joyeeta Gupta et al (2015) Towards an Elaborated Theory of Inclusive Development European Journal of Development Research (2015) 27 541ndash559

Evidence snapshot Examples of experiences with mandatory criteria and rules on inclusiveness

National-level cross-sectoral reform Reform Analysis of comprehensive data from Brazil shows that winning at least one [government] contract in a given quarter

increases firm growth by 22 percentage points over that quarter with 93 of the new hires coming from either unemployment or the informal sector These effects also persist well beyond the length of the contracts Part of this persistence comes from firms

participating and winning more future auctions as well as penetrating other markets (Ferraz Finan and Szerman 2016)

Health and Nutrition Reform and barriers In Tanzania national legislation was passed on mandatory staple food fortification in 2011 following advocacy

efforts of national level alliances under the umbrella of the GAIN initiative (Kubzanzky et al 2013) Even though the government waived import taxes on fortification equipment and nutrient premixes to increase incentives for private sector adoption (Preedy et al 2013 Method et al 2015) demanding business registration and certification requirements of the Business Registrations and Licensing Agency meant that most SME food processors were unable to adopt food fortification (only registered SMEs were allowed to fortify) (IDS 2015) Case studies of Bangladesh Indonesia Cocircte drsquoIvoire Burkina Faso Madagascar India and South Africa (Hystra 2014) and Malawi Burkina Faso and Tanzania ( Mildon et al 2015) also point the need for other complementary measures as food fortification requires very substantial investments in promoting products and increasing user awareness

Financial services Reform In India the government required all insurance companies to sell a percentage of their policies in rural areas This policy

was however unsuccessful (Endeva 2013a)

Agriculture Reform As part of revisions to Investment Law a number of governments (eg Liberia Vietnam Ethiopia Lao Burkina Faso) are

planning to make contract farming a mandatory requirement for approval of large-scale land investments (Information provided by FAO based on ongoing research by ISSD) In both Indonesia and Colombia laws regulating the establishment or expansion of plantation areas have mandatory requirements for sourcing from smallholders (Information provided by FAO)

Reform In the Philippines a presidential memorandum was used to mandate the use of coconut fibre in all government infrastructure projects benefitting about 2000 poor supplying households and a growing supporting industry (Endeva 2013a)

Reform A requirement in India for foreign retails to source at least 30 of their produce from local MSMEs has caused ldquoa stalemate in retail developmentrdquo(Altenburg et al 2016)

Energy water and environmental services Reform The Government of Manila granted Manila Water Company a concession for water and wastewater services under the

condition of meeting service targets to cover previously excluded slum populations (G20 Inclusive Business Framework) As a result the company implemented targeted programmes to provide water services to poor areas (Franceys and Gerlach 2012)

Education Reform In 2009 India adopted The Right To Education Law which requires that 25 percent of the first grade places in non-

government schools be offered to children from low-income families (Heyneman 2014)

54

Broadly speaking three major forms of mandatory

inclusion rules or preferential government

treatment of inclusive businesses are frequently

mentioned in the literature

bull Industry-specific rules and regulations that

oblige businesses to include the poor in their

business model or to design their products or

services to address the needs of low-income

populations Examples include mandatory

food fortification or quota requiring

companies to sell a certain percentage of

their products to poor customers (eg

insurance policies or bank loans)

bull Pro-poor targets in government contracts

requiring companies contracted by the

government to achieve a certain level of

inclusion of poor producers or consumers in

public-private partnership projects or

bull Preferential public procurement which

favours inclusive business in the selection of

suppliers of goods or services to

government155

Risks associated with mandatory inclusion rules

In general little research seems to exist on the

direct and wider economic and social impacts of

mandatory inclusion policies and many policy

examples in the literature do not include any

information on results (as is the case for some of

the examples include in the lsquoevidence snapshotrsquo)

Mandatory inclusion is however criticised for

raising the cost of doing business distorting

markets and being ineffective or less effective

than other policies As noted by Endeva (2013)

ldquopure push strategies may not be

effective if there is no real pull from the

market siderdquo156

Indeed private incentives for involving a fixed

amount of poor suppliers or customers are

typically lacking For financial institutions for

instance ldquomandatory allocation [of loans] to BoP

sectors is unlikely to be acceptablerdquo as it raises

155 See for example the G20 Inclusive Business Framework 156 Endeva (2013a) p39

the cost of financial intermediation significantly

It also reduces the total supply of credit157 This is

also applies to insurance A mandatory inclusion

law for Indian insurance companies did not

achieve its desired effect and was only very rarely

enforced by the regulatory authority158 Briones

(2015) suggest that a more effective alternative

to mandatory allocations of credit to the poor

would be to provide lsquosmart subsidiesrsquo in the form

of cash transfers to poor households159

Local content rules and minimum sourcing

requirements for international investors are

another possible form of mandatory inclusion

These have been used by some countries (eg

India and China) to lsquoforcersquo supermarket chains to

source from small domestic suppliers This is

however prohibited by WTO rules and it can put

companies off from investing at all In India it has

caused ldquoa stalemate in retail developmentrdquo160

Alternatives to mandatory inclusion and


According to the German Development Institute

facilitating links between local suppliers and

interested investors is more promising than local

sourcing requirements - eg by providing

information about local suppliers or linking

inclusive supply chains to a greater likelihood of

licenses for additional outlets Only ldquounder

certain circumstancesrdquo should supplier

development be made mandatory eg through a

company-specific or nationwide supplier

development fund Still the success of such

funds ldquowill depend on the level to which retail

corporations take ownershiprdquo161 ndash so market

demand remains a critical condition for

mandatory measures There are also less

interventionist government strategies to enable

157 Briones (2016) 158 Endeva (2013a) p39 159 Briones (2016) 160 Altenburg et al (2016) Making Retail Modernisation in Developing Countries Inclusive A Development Policy Perspective German Development Institute p34 161 Ibid p34 35

Findings and discussion The role of mandatory and preferential criteria on inclusiveness in promoting pro-poor growth

55

supply side development while avoiding negative

distortions This includes an enabling

environment for standard development testing

and certification (see also section 123) or

offering incentives to farmer associations which

help farmers sell to larger buyers162

Governments that do opt for mandatory rules

affecting an entire industry will also need to

consider complementary interventions and

incentives to ensure market uptake This is

illustrated mandatory food fortification

interventions in several countries which required

follow-up measures such as making it easier for

food processors to register and obtain licenses

providing tax incentives for imported inputs

andor facilitating or sharing the cost of

awareness-raising among consumers Which

costs businesses are willing and able to bear

varies by country and it is ldquobest to engage the

[them] in [public-private dialogue] on the most

acceptable way to fund such expensesrdquo163

Lessons on preferential public procurement

There is limited evidence on preferential public

procurement for inclusive business or pro-poor

targets in government contracts One example of

effective the effective use of pro-poor targets in

government contracts is the water sector in

Manila In the area of preferential procurement

some lessons can be learned from procurement

schemes for SMEs Ferraz Finan and Szermanrsquos

analysis of government procurement in Brazil

illustrates its potential benefits for business

growth SMEs that won at least one government

contract hired more employees (mostly from the

informal sector or unemployment) and managed to

enter new markets164

As other targeted government measures

preferential procurement does not come without

162 Ibid p39 163USAID SPEED (2014) Fortification of Staple Foods in Mozambique 164 Claudio Ferraz Frederico Finan and Dimitri Szerman (2016) Procuring Firm Growth The Effects of Government Purchases on Firm Dynamics

risks ADB (2012) points out that

Preferential procurement schemes can be

manipulated to facilitate lsquomarket capturersquo

or lsquorent seekingrsquo by vested interests

resulting in higher prices for goods and

services SME procurement schemes can

lead to longer-term inefficiencies and

higher costs through increased SME

dependency on governmentrdquo165

In addition to political economy factors the

ability of preferential procurement policies will

also depend on the overall level of development

Cash-strapped governments frequently delay

their payments by up to a couple of years which

can have serious implications for business with

limited access to formal financial services and

rely on their clients for their cash flow166 As such

least developed countries may not be able to run

such procurement schemes effectively In other

countries it can be useful to introduce legislation

which stipulates periods within which

Government contracts must be paid out167

Finally the decision whether or not to introduce

preferential procurement should be based on an

assessment of the constraints faced by inclusive

business in accessing government contracts If

access is primarily hampered by a lack of

information or complicated procedures

facilitation mechanisms can offer a more

effective and market-based solution Facilitation

bureaus could help business understand

government contracting processes or even

create opportunities for sub-contracting by

linking them up with prime contractors168 There

may also be a need to raise awareness among

government about the benefits of working with

inclusive business and how assess the

inclusiveness of applicants

165 ADB (2012) SME development Government Procurement and Inclusive Growth 166 Simon Bell and Yolanda Taylor (2016) Government procurement ndash A Path to SME growth Blog post on the World Bank PSD Blog 167 Ibid 168 Ibid

56

gtgt There is a tangible difference in the language rationale and strategic principles underlying successful

examples of past industrial strategies and the ones proposed for inclusive business development Most

notably traditional industrial strategy emphasises productivity growth competitiveness and management

of incentives based on economic performance of firms New industrial policy proposals in the inclusive

prioritise criteria of social impact in awarding and managing incentives While it unclear whether strategies

prioritising social impact would replace or simply complement other industrial strategies it is a critical

question how governments can deploy resources in the most strategic way for poverty reduction

gtgt There is currently no evidence on the effectiveness of industrial policies prioritising social impact but there

is a risk a broad strategic focus on social criteria could actually reduce aggregate productivity and long-term

prospects for inclusive growth

gtgt A practical way to balance economic and social objectives in industrial strategy would be to carefully

calibrate manage and complement proven industrial strategy frameworks that focus on productive growth ndash

for example by

gt advising on regulatory reform and industrial policies that make it easier for businesses to

invest in labour-intensive manufacturing and productivity-enhancing practices in agriculture

gt promoting decent working conditions for women and men in labour-intensive industries

gt working through sectoral programmes (eg value chain or cluster development) to create linkages

between smaller businesses involving the poor and larger businesses that benefit from government

incentives

gtgt Donor programmes should avoid promoting mandatory inclusion rules without careful assessment of their

likely effectiveness and economic viability In most cases they work against private incentives raise the cost

of doing business and donrsquot achieve their set objectives Alternatives to mandatory inclusion which are

likely to be more effective include end-user subsidies to the poor or measures that respond to the interest

and demand of businesses (eg access to information about integrating the poor producers in the business

model or licensing incentives) complemented by supply side development Where mandatory rules seem

appropriate to enhance the well-being of the poor they will likely need to be complemented by additional

public support (eg tax incentives) to help business adopt new ways of operating

gtgt There is not much evidence on the benefits of preferential public procurement on inclusive business

although some benefits have been reported in similar schemes for SMEs Before introducing such schemes it

is however vital to assess

gt what prevents inclusive business access to government contracts in the first place and if it could be

facilitated through other measures (eg streamlining procedures)

gt and whether government has the capacity and resources to run such schemes effectively

Summary of findings ndash Question 4 Should targeted support strategies prioritise criteria

of social impact or productive growth

Summary of findings ndash Question 5 Among interventionist strategies are mandatory

rules and preferential criteria on inclusiveness effective means to promote pro-poor

growth

57

C Cross-cutting issues and conclusion

What types of programmes are best suited to identify and support

business environment reform for inclusive business

58

This concluding section draws implications from the previous sections for how different types of private sector development programmes can

contribute to a better enabling environment for inclusive business Three very common categories of private sector development programmes

include traditional business environment reform and policy advisory or advocacy initiatives programmes working at the level of sectors including

market systems and value chain development programmes and partnership funds and facilities working with individual businesses Are any of

these more or less suited to address different elements of an enabling environment for inclusive business

In this section

a Following a plan Business environment reform approaches focusing on the policy level

Summary and conclusion

b Making strategic choices Multi-pronged reform approaches starting at the level of markets and sectors

c Grasping opportunities Reform approaches starting at the level of individual business partners

d Political economy considerations as a key issue for all programme types

59

a) Following a plan Business environment reform approaches focusing on the policy level

Programmes pre-occupied with improving the generally regulatory environment and overarching

government policies vis-agrave-vis the private sector typically engage directly at the policy level They do so by

working with government partners andor via business associations to promote reforms that are widely

recognised as making private sector investment easier and less costly As such the basic parameters of

reform are often already specified in programme planning and design ndash in line with international good

practice or in response industry-specific concerns In addition to donor-led initiatives industry-level or

multi-stakeholder alliances can be created to advocate for specific reforms

How can such programmes contribute to an improved environment for inclusive business Based on the

previous discussions programmes focusing on the policy level are well placed to help improve some of the

essential framework conditions and cross-sectoral areas of the business environment that affect private

sector investment andor inclusive business in general ndash such as land titling reform financial sector reform

and regulatory improvements for impact investment or competition policy frameworks Advice on

appropriate industrial strategies in pro-poor growth sectors are also within the remit of such for

programmes Their ability to identify and address business environment constraints that are specific to

certain sectors or innovative business models may however be more limited as they tend not to engage in

in-depth sectoral research or interact individual pioneer businesses to learn about their constraints The

box offers two examples of policy-level reform initiatives for inclusive business

Examples of policy-level initiatives promoting an enabling environment for inclusive business

1 Donor-led initiative The GEMS3 programme in Nigeria169 In Nigeria gaps in access to finance a lack of security of tenure and the persistence of an excessively lengthy and complex process for acquiring licences are strong operational barriers to many small medium and micro enterprises (MSMEs) The DFID-funded GEMS3 programme promotes reform through the following activities

bull Advising on tax harmonisation to reduce the number of taxes paid for by MSMEs bull Undertaking a thorough review of land ownership in selected areas and devising policy reforms to

make land registration simpler and more transparent in order to increase levels of investment bull Promoting business registration reform

This business registration work stream which was implemented in collaboration with the Nigerian governmentrsquos Corporate Affairs Commission has reduced the cost of registering a business and removed the need for a lawyer to assist with this process A complementary strategy has been the ldquoRunning a business in Nigeriardquo campaign to provide information of these legislative changes and the benefits of registration (eg setting up a corporate bank account benefiting from international trading opportunities and gaining access to investment capital as well as government loans) The programme claims the average of registrations from March 2013 to February 2014 have increased by over 900 to 22707 new business formalisations By April 2014 this work is reported to have resulted in an estimated increased income of pound4894488 for 19781 enterprises It is also estimated that cheaper registration has so far saved Nigerian businesses roughly pound25m annually in costs While GEMS3 does not report on any direct impact of these benefits on the poor numerous reports point out the important role of SME as a vehicle for poverty reduction170 ndash either as employers of the poor171 or as

169 Adapted from Adam Smith International Enabling business in Nigeria by reforming the tax system and promoting investment

(webpage) GEMS Nigeria website and Kristofer Gravning (nd) Nigeria Unleashing the Giantrsquos Potential Ensuring Economic

Growth in Nigeria through legislative reform and business registrations Adam Smith International article on The Guardian 170 See for example Basil Onugu (2005) Small and medium enterprises in Nigeria Problems and Prospects 171 DCED (2013) Current Debates on Small Enterprises and Development Agency Support Synthesis Note

60

providers of products and services to the poor172 Cost savings and higher income are likely to contribute to business growth at least for a sub-set of SMEs and thereby increase benefits for the poor in their supply chain 2 Industry-specific multi-stakeholder alliance The Global Alliance for Clean Cookstoves173 The Global Alliance for Clean Cookstoves is a public-private alliance created with the specific objective to promote the global use of clean and efficient household cooking solutions To create enabling conditions for the adoption of save and affordable clean cooking solutions the Alliance has influenced a process to create the first-ever global standards for cookstove safety efficiency and cleanliness The Alliancersquos leadership has also been influential in the process to create the first-ever global standards for cookstove safety efficiency and cleanliness It also provides access to market information (eg country-specific market and consumer research information about national standards) It also works on building the national quality infrastructure around clean cookstoves eg by enhancing testing centres The Alliance also works with governments in eight focus countries to develop and shape government strategies for further progress

This community of practice of PSD programmes seeks to develop entire markets or sectors in developing

countries ndash often under banner of lsquoMaking markets work for the poorrsquo (M4P) lsquoMarket Systems

Developmentrsquo or (systemic) Value Chain Development While there may be differences between the exact

approaches and objectives chosen the key features of these programmes include

bull Starting by identifying strategic sectors in an economy that have significant economic growth potential

and are relevant to the poor programmes then conduct a thorough analysis of the sectoral constraints

for inclusive growth that businesses and the poor face

bull Identifying the most suitable intervention strategies to facilitate solutions to the constraints

encountered by catalysing innovation and improving the functioning of markets In case regulatory or

other policy constraints are seen as a key obstacle this could imply for example building the capacity

of partner businesses and associations to advocate for reform and

bull Working through a range of interventions aimed at developing the sector at the same time This means

that regulatory and policy reform support will be complemented for instance by interventions in

companiesrsquo supply chains or to increase the functioning of supporting markets (eg finance research

and training)

Such programmes seem to be particularly suitable for creating an enabling environment for inclusive

business for two reasons

bull First of all the analysis in the previous sections suggests that an important share of regulatory and

policy constraints to inclusive business are either sectoral or relate to a specific business innovation

bull Secondly many examples of business environment reform pointed to the need for additional

supporting interventions for the growth of inclusive business models In addition research highlighted

that market-based alternatives are likely to be more effective that mandatory inclusion policies by

governments Market development approaches lend themselves well to such a multi-level approach as

they are anyway typically designed to address different market players and functions or activities in a

value chain at the same time Examples of interventions that complement regulatory or policy reform

include

172 UNIDO (2006) Productivity enhancement and equitable development challenges for SME development 173 Adapted from httpcleancookstovesorg

b) Making strategic choices Multi-pronged reform approaches starting at the level of markets

and sectors

61

o facilitating training of small producers in companiesrsquo supply chains (eg to support the compliance

with quality standards or as a market-based alternative to mandatory inclusion policies vis-a-vis

retailers of agricultural produce)

o awareness-raising of new products or end-user subsidies among poor consumers (eg to ensure

uptake of pro-poor products or technologies whose production benefits from a recently de-

regulated government sector or pro-active measures such as tax incentives)

o Facilitating the production of research for government or market intelligence for business (eg on

suitable input suppliers consumer preferences regulatory requirements etc)

o supporting capacity-building of institutions involved in testing and certification (in the case of

quality standards)

The examples below offer examples of how market development programmes have promoted change at

the level of government regulations and policies

Examples of market development programmes that promoted regulatory and policy reform

1 Increasing competition in Fijirsquos seed market The Market Development Facility (MDF)174 MDF is a market development programme funded by Australian DFAT in Fiji and other countries MDFrsquos initial sector assessments in Fiji showed that the horticultural sector had particular potential for pro-poor growth A key inclusive growth barrier in the sector was however the lack of sufficient stocks and different varieties of seeds which prevent farmers from grow a variety of crops throughout the year As Fiji had only one licensed seed supporter MDF entered a strategic partnership with the company KKrsquos hardware to catalyse pro-poor change in this market KKrsquos hardware wanted to diversify into seeds and other agro-inputs but complex regulatory requirements of Fijirsquos Biosecurity Authority had prevented it from entering this business The main purpose of the partnership was therefore to help KKrsquos hardware understand requirements for obtaining a seed license to identify suitable seed foreign suppliers to strengthen KKrsquos relations with the Biosecurity Authority and to facilitate the process of getting the import Through its work with KK MDF was also able to flag to the difficulties that businesses attempting to move into this market faced more generally in particular due to a lack of information by the government Ultimately it is expected that increased competition in the seed market will give farmers access to good quality seeds sufficient seed varieties and stocks of seeds throughout the planting seasons enable them to save production time and increase yields and income 2 Moving towards a systemic approach to promoting solar home systems The Lighting Africa Initiative175 Following various other initiatives to promote solar home systems in Africa the IFC launched the Lighting Africa Initiative in 2007 This started out as a partnerships facility with a global call for project proposals aimed at developing new lighting products and delivery models for the large rural off-grid lighting market But the Lighting Africa programme soon began widened the scope of its activities including market research in several countries product testing and the development of quality assurance methodologies identification of financing needs throughout the value chain knowledge-sharing and self-evaluation and research to identify policy constraints in several countries For Kenya for example Lighting Africa added to existing market assessments by conducting in-depth research on products available in Kenya product-testing and a review of the policy environment and policy actors Between 2009-2013 Lighting Africa became much more active in Kenya in terms of interventions and engage engaged in an awareness-raising campaign quality-assurance labelling of products setting-up of a product-quality testing facility training of technicians capacity-building for business development and for finance

174 Adapted from MDF (2015) Innovating Private Sector Engagement in the Indo-Pacific Region The Australian Government-funded Market Development Facility 175 Adapted from Byrne and Ockwell (2013) Building pathways of pro-poor energy access PV-powered electricity services in Kenya

62

institutions lobbying of policy makers on regulations and building of networks of actors to encourage the flow of information Whilst it is difficult to determine the extent to which the rapidly expanding market for small off-grid lighting products in Kenya can be attributed directly to these efforts the programme does make a series of claims (see Byrne and Ockwell (2013) p13 for details) One clear lesson from the evolution of the Kenya solar power market is that its success is explained by a combination of interventions that have addressed several dimensions of a nascent innovation system An interesting aspect of these interventions has been the effort to understand the detail of consumer preferences and constraints This has enabled much better design of products to the context-specific nature of electricity services in rural areas 3 Advocacy and advice on sheep sector development Alliances Lesser Caucacus Programme (ALCP) in Georgia176 ALCP is an SDC-funded market systems development programme in Georgia focusing on livestock sectors Market analyses revealed that the traditional Animal Movement Route from winter to summer pastures represented a key constraint for sheep sector development partly as bad management had become a lynchpin for national animal disease control To address this issue ALCP formed an Advisory Committee with private sector and civil society stakeholder to advocate for improvements It also supported the development of a documentary film which further highlighted the importance of the route to policy-makers Multi-stakeholder coordination and facilitation between local and regional government relevant Ministries businesses and the Shepherds Association led to the construction of a new bypass route and a process to improve the wider route and its management with the support of an external expert supported by ALCP This included Development of a new infrastructural model identification of strategic points for new facilities such as biosecurity points and vaccination resolving uncertainty over pasture land tenure and access and plans for re-routing the animal movement route from main roads ALCP is now facilitating the building of five Bio-Security yards with water points on the Animal Movement Route financed from the State Budget

c) Grasping opportunities Reform approaches starting at the level of individual business partners

A third common donor approach to develop economic opportunities for the poor is to develop partnerships

with individual businesses One typical format includes funds and facilities that invite project proposals by

businesses and award support to on a competitive basis Support can be in the form of matched funding

(eg in the case of the Africa Enterprise Challenge Fund) or technical assistance (eg in the case of the

Business Innovation Facility pilot) to individual businesses that meet the criteria of the fund The objectives

are similar helping innovative and inclusive business models start-up improve or grow

While business environment reforms are not typically on the radar of such partnerships from the outset

programme staff or donor embassies can grasp opportunities to engage at the policy level as well If a

binding constraint to the success of a business model is identified during the partnership programmes can

play a critical role in facilitating dialogue between the business and government and in providing credibility

In fact responsiveness of the government to acute issues brought to their attention by businesses might

even be better than in the case of ldquothe government-to-government programmes that are typically

pursuedrdquo177 While not many cases of such reform have been documented the box provides a few

examples of where this has happened in practice

Examples of partnerships funds and facilities that support regulatory and policy reform for partner businesses178

176Adapted from Alliances Lesser Caucasus Programme Annual Report 2014-2015 177 Chilver Van Diermen and Jones (2006) Using Enterprise Challenge Funds to Promote a more Enabling Environment for Business Challenges and Opportunities p6 178 Adapted from various sources summarised in DCED (2013) Donor partnerships with business for private sector development What can we learn from experiences

63

bull In Ethiopia several companies that partnered with the German and Dutch governments have succeeded in having laws changed that severely hampered their business operation some also participate regularly in meetings with government institutions such as the customs facility following the facilitation of the donor partner An evaluation of a former Dutch matching grant programme (PSI) stresses that in some countries Dutch embassies provided active support in bringing business climate issues to the table This included the floriculture sector in which the programme had supported several partner companies

bull Most PSI partner businesses in the floriculture sector in Ethiopia also opted for some type of voluntary certification of good agronomic practices (as described in the project proposal and monitored by the PSI programme) This has been catalytic in improving environmental practices in the entire sector as the Ethiopian Horticultural Association later made these standards conditional for obtaining an export licence

bull In the context of a micro-insurance project in India DFIDrsquos Financial Deepening Challenge Fund (FDCF) helped raise the profile of issues with existing regulations and helped the micro-insurance businesses work together to lobby for changes

Whether and how effectively partnership funds and facilities can play a role in business environment reform

will partly depend on their design and project selection criteria

bull The more emphasis is placed on selecting highly innovative projects the more likely it is that

partner businesses encounter regulatory and policy constraints that are very specific to their

business model and that warrant complementary reform efforts by the donor or implementing

programme In fact growing interest among donor agencies in supporting lsquoinnovation fundsrsquo ndash

dedicated to the provision of finance for the piloting and scaling up of inclusive innovations from

any country or sector ndash provide a useful entry point to identify business environment reform needs

of a partner business and facilitate exchange between the business and government

bull Funds that support a number of similar partnerships in a priority sector in the same country may

also be able to support partners in advocating for sectoral business environment reforms including

through public-private dialogue platforms

bull Funds and facilities that operate in-country whether through embassies or implementing

organisations are more likely to have the capacity and networks to facilitate dialogue between a

partner business and the government on specific regulatory or policy barriers

bull For centrally-managed funds in donor countries an increased focus on regulatory and policy

constraints faced by partner business will require collaboration with embassies or relevant private

sector development programmes in the field to support such processes

Figure 5 below summarises the comparative roles of policy-level sectoral and business partnerships

programmes in promoting business environment reform

Figure 5 Stylised comparison of the role of different types of programmes in promoting business


64

d) Political economy considerations as a key issue for all programme types

Political economy factors can critically influence

the success of any types of programme to reform

the business enabling environment As

summarised by DCED (2011)

ldquoA countryrsquos political system and

institutions impact on the economic

domain and therefore also on business

environment reform programmes and

other PSD interventions Reforms are

much more likely to succeed if they are

designed based on knowledge of local

political economy factors and conversely

reforms failing to take account of these

may failrdquo179

Similarly Adam Smith International (2016) in

their analysis of how inclusive market

development programmes can get to scale not

that

ldquo[Strengthening or reforming rules and

regulations] offers the promise of

influencing a whole sector or industry

However this cannot be achieved merely

by the stroke of a pen rules and

179 DCED (2011) The Political Economy of Business Environment Reform An Introduction for Practitioners

regulations are often highly contested

and political and programmes need to be

skilled in political economy to navigate

these competing interestsrdquo180

While all policy reforms require an assessment of

the incentives of relevant stakeholders the

previous sections suggest that some business

environment reforms for inclusive business may

be particularly politically sensitive A number of

issues and reform approaches can require

particularly careful analysis and change

management

bull Creating an enabling environment for

inclusive business in previously state-

dominated sectors This requires awareness

raising to change culture and attitudes in key

government institutions as much as technical

knowledge of regulatory reform options181

bull Removing existing restraints on inclusive

activities firms or industries or stopping

subsidies to incumbent industries that

180 Adam Smith International (2016) Getting to Scale Lessons in reaching scale in private sector development programmes 181 eg Endeva (2013a) p31

Programmes working exclusively at the policy level Focus on established good practices for creating

enabling conditions for private investment (and inclusive

business) at the national level occasional role in addressing

widely known sectoral growth constraints

Opportunitistic reform efforts arising from partnerships with inclusive businesses Focus on direct support to individual business models sometimes including assistance in addressing binding regulatory and policy constraints to specific innovations

Multi-pronged reform approaches starting at the sector level Focus

achieving inclusive sectoral growth

inclduing by addressing regulatory and policy

barriers in sectors and innovative businesses

within them

65

inclusive businesses threaten to displace

Both activities may be directly linked to

vested interests of state officials182

influential businesses or lobby groups

Examples mentioned earlier include the role

of bank lobbies in blocking mobile banking

regulations or shifts in government

incentives from fuel to healthier and cheaper

energy sources for the poor o

bull Working with individual companies to

advocate for reform Programmes need to be

aware that partner companies may not easily

buy into reforms that facilitate the entry of

competitors in the market and may instead

prefer individual benefits and exemptions

Programmes can therefore face trades-off

between creating enabling conditions for

and working in collaboration with individual

partner companies and advocating for wider

regulatory reform for an entire sector on the

other Careful sequencing of reforms or

coordination with other programmes

working on business environment issues may

be required IN the same context risks and

opportunities will be different for when

working with small or large companies for

small firms working through business

associations might be more suitable whereas

large companies have enough political

leverage to advocate for reform on their own

or with support by donor programmes

However this also involves risks for example

if a large international lsquoinclusiversquo business

starts entering deals with the government

that make it more difficult for small local

business to enter the market

bull Managing competing pressures to focus on

certain sectors or types of reform Efforts to

promote certain types of regulatory reform

or targeted government support may be

hampered or undermined to competing

pressures from government Ministries or

donor funded programmes to focus sectors

or types of measures Successful programme

182 Koh et al (2014)

management will require navigating such

conflicting demands and using effective

communication strategies about the benefits

of the approach promoted by the

programme

There are two important implications for

programmes seeking to promote inclusive

business

1 Given that political economy analysis has so

far not received a lot of attention in inclusive

business programmes and research there

seems to be great potential for incorporating

lessons from the business environment

reform community on how to conduct

political economy analysis manage reform

processes generate stakeholder buy-in and

choose partners which are strategically

placed to champion reform efforts

2 Among different types of private sector

development programmes funds and

facilities for partnering with individual

business have paid relatively less attention to

political economy issues This is partly

because they donrsquot tend to have the staff

capacity and budgets for engaging in

business environment reform and associated

analytical work Partnership facilities that are

interested in supporting business partners in

advocating for business environment reform

could however consider options for accessing

existing research by other PSD programmes

or collaborating with them on research and

reform promotion

66

gtgt PSD programmes differ in how they identify and address policy and regulatory constraints for businesses

As such they vary in their ability to tackle different elements of an enabling environment for inclusive

business

gtgt Policy-level initiatives In order to address cross-sectoral or other fundamental constraints to private

investment that also affect inclusive business donors can engage directly with government through

advisory and advocacy programmes Within such programmes it is often possible to follow established

good practices in designing new regulatory and policy frameworks for partner governments In addition to

government-to-government initiatives donor support to industry-led advocacy alliances is useful option if

there widely known inclusive growth constraints at sectoral level

gtgt Approaches starting at the level of markets and sectors Market systems development and other sectoral

programmes are particularly suited to address policy and regulatory constraints for inclusive business

models that are not usually covered in national reform packages or that are outside their scope due to the

innovative approach of the business The bottom-up approach of market development programmes based

on a thorough analysis of sectoral constraints to inclusive growth lends itself to the identification of sector-

and innovation-specific business environment barriers Another comparative advantage of these

programmes is that they pursue a variety of interventions at the same time (eg also including supply chain

development etc) which has been shown to be critical for inclusive business development

gtgt Partnerships with individual business While this is not typically within their mandate some partnership

funds and facilities that provide support to inclusive businesses have grasped opportunities to help

partners engage with government on binding constraints to their operational model As such donors could

use partnership programmes increasingly as mechanisms to flag issues and facilitate reform for partners

with highly innovative proposals that are not on the radar of other reform initiatives If programmes have

insufficient resources to do this increased collaboration with other PSD programmes in a country could be

instrumental to address such reform needs

gtgt Regardless of the approach chosen programmes will benefit from considering political economy factors

influencing business environment reform for inclusive business There may be strong disincentives or a lack

of knowledge among both government and inclusive business partners for engaging in certain reform

efforts (eg those that imply a withdrawal from subsidies from incumbent business or market entry of

competitors) Such factors donrsquot feature prominently in guidance on inclusive business support but

programmes could draw on advice on political economy analysis and reform management from the

business environment reform community

Summary 6 and Conclusion What types of programmes are best suited to identify

and support business environment reform for inclusive business

67

Concluding remarks

This paper shows that the enabling environment for inclusive business is a complex topic that cannot easily

be addressed based on generic recommendations and checklists While many lsquostandardrsquo regulatory reforms

to stimulate private investment are likely to benefit inclusive business as well the market entry and scaling

up of innovative inclusive business models will often require additional tailor-made government

responses based on an assessment of the target sector and the needs of individual businesses Many of

the targeted government policies commonly suggested for promoting inclusive business seem to be either

ineffective or still unproven There are however lessons or effective alternatives for promoting inclusive

business emerging from the wider field of targeted policies for PSD

More generally the paper has summarised a rich set of evidence and experiences that programme designers

and practitioners can draw on These emerge from different communities of practice in PSD which may not

always use the same language but typically share the objective of the inclusive business community of

promoting more inclusive markets and economic growth As such increased exchange of lessons learnt

with these practitioner groups could allow practitioners to make more informed policy choices While

these policy choices are often not just about evidence but also about which strategies donors and

governments lsquochoosersquo to believe in183 the lessons outlined in this paper already offer important guiding

principles to help make chosen approaches ndash whether competitively neutral or interventionist ndash more

effective in contributing to inclusive growth

183 The Economist (2016) All at sea Ideological divisions in economics undermine its value to the public

68

1Functional areas of Business

Environment Reform

Proven tool(s)

Amount of evidence or

practical examples identified in this paper on

how business environment barriers and reform affect

inclusive business

Reform options as currently

implemented that are likely to benefit inclusive business as well

Additional sector- or business-specific measures identified that may be needed for

inclusive business development and growth

Note that these measures will typically require sector analysis and or working with individual inclusive business to identify their constraints and devise tailor-made

reforms to address them

Examples of further reading or

suggested research needs

Business registration and licensing rules and procedures

11 examples of inclusive business experiences (barriers and reforms related to registration and licensing)

Academic evidence on general registration and licensing reform

Streamlining overly complicated or demanding business registration and licensing procedures can facilitate formalisation and growth of inclusive (and other) business

Changing obstructive regulations to enable the formalisation of existing informal inclusive business models that have the potential to grow and achieve large-scale impact on the poor

Removing or relaxing restrictive regulatory requirements which prevent business from engaging with informal suppliers or clients

Changing sectoral licensing regimes or removing single licensing requirements preventing the market entry of innovative inclusive business models

Sector-specific cross-country research on licensing constraints and solutions for inclusive business could be useful to develop more systematic insights into good practice

Tax regulations and administration

5 examples of tax-related barriers to inclusive business

No examples of regulatory reform positively affecting inclusive business

Like other companies inclusive businesses are likely to benefit from simplified tax administration but now empirical insights into this were identified in this paper

This paper only identified examples of tax-related barriers to inclusive business but not of effective regulatory reform Special tax incentives for inclusive business are more frequently referred to in the literature than efforts to level the playing field between inclusive and other business While the following reform options respond to the barriers identified they are therefore only exploratory in nature

Reducing excessive taxes and duties for inclusive technologies to reduce cost for inclusive business and facilitate their growth

Removing tax exemptions targeting incumbent businesses products or technologies that inclusive business compete with

Further research could explore the existence of successful

cases of normalising excessive tax levels for inclusive technologies

the impact of removing tax exemptions from incumbent products on inclusive technologies as well as lessons on sequencing (for instance in the energy sector)

Access to finance regulations

Many examples regulations affecting businessesrsquo ability to provide finance to the poor

Several examples of restrictive impact investment regulations 1 example of regulatory reform for impact investment

3 examples of regulations affecting bank lending to SMEs and informal business

Enabling inclusive business to access finance Creating a conducive regulatory

environment for SME lending

While there no empirical insights suggesting a direct impact to inclusive business growth were identified there seem to be indirect links Research suggests than SMEs often play a role in poverty reduction by providing employment opportunities to the poor and several of the inclusive businesses featured in this paper seem to be in the SME category

Enabling inclusive business to access finance Creating a conducive regulatory environment for impact investment (and other

newer forms of finance) that are of particular relevance to high-risk investments with pro-poor impact

Facilitating access to information about inclusive businesses and relevant target sectors to a) raise awareness in government of their role as regulator and investment facilitator and b) to increase bank and impact investor interest in inclusive business

Enabling inclusive business to act as providers of finance Creating regulatory frameworks to enable agent banking in rural areas to reach

poor customers

Creating regulatory frameworks to enable mobile banking services by non-bank providers to reach rural and poor customers

World Bank (2016) Enabling the Business of Agriculture (with good regulatory practices in agent and mobile banking regulations)

Further research would be

useful to compile and benchmark regulatory framework conditions for impact investment in developing countries

Annex 1 Summary tables Reform and policy options identified that benefit inclusive business and implications for further research

69

Land titles registers and administration

Academic evidence on the impact of land titling interventions on farmer yields and income

3 examples of land law reform and their impact on investment or economic opportunities for farmers

1 example of barriers facing a specific inclusive business model involving land

Implementing land titling reform for the rural poor as a way to increase productivity and yields thereby increasing their ability to supply to or buy from inclusive business

Facilitating (inclusive) business investment through long-term leasehold regulations

Removing binding constraints for inclusive core business activities involving land (eg leasing small plots to farmers)

In order to attract agricultural investors some governments may sideline land access implications for the poor Introducing safeguards to land or investment law may help to mitigate such risks

In the context of public-private partnerships in agriculture further evidence would be useful on possible regulatory safeguards as well as risk assessments that can help to mitigate risks related to land rights for the poor

Studwell (2013) provides a

detailed account of how land reform has provided the basis for inclusive growth in several Asian countries

Public-private dialogue

Many examples of

business environment reform following public-private dialogue available although not always specific to inclusive business

Using existing public-private dialogue fora or relevant sectoral sub-groups to raise concerns facing inclusive business

Forming new national dialogue fora for inclusive business only especially where existing platforms donrsquot seem appropriate and a substantial number of inclusive business share concerns within or across sectors No examples of such separate fora have been identified as part of this paper as such they represent an exploratory policy tool

For highly innovative pioneer business direct exchange with government facilitated by donor programmes may be more effective than the use of public-private dialogue fora

Global dialogue and advocacy platforms can be of use for specific inclusive technologies whose adoption would be facilitated by international approaches or standards

The World Bankrsquos lsquoPublic-Private Dialogue Handbookrsquo

ASI and Springfield (2011) A market systems approach to public-private dialogue and business environment reform

GIZ (2014) Inclusive business models Options for support through PSD programmes

Quality standards

11 examples of inclusive business experiences (barriers and reforms related to quality standards)

Supporting public quality

infrastructure development or filling gaps in public infrastructure by working with private sector providers of training inspections and testing services (eg associations commercial laboratories)

Suitable reforms in the area of quality standards are highly depend on the business model the market they are operating in as well as supporting quality infrastructure A key recommendation from practitioners of quality infrastructure development is therefore to take a bottom-up approach and carefully analyse relevant business constraints market dynamics and existing quality standards and services of a government to inform reform efforts Reform options identified include

Removing or relaxing existing standards that prevent market entry or formalisation of an inclusive business model

Developing new quality standards to help innovative and inclusive market entrants reach scale by shielding them from cheaper but low-quality competition

DCED (2014) Leveraging the Impact of Business Environment Reform The Contribution of Quality Infrastructure

DCED (2014) Practical guidance on developing quality infrastructure

Evidence on fair trade and sustainability certification in the DCED Evidence Framework here and here

70

Overarching regulatory governance and frameworks Regulation and de-regulation

8 reform examples in wide-ranging reforms in sector structure and governance (complemented by insights from other sections)

Laying the foundations for private sector investment through appropriate legislative frameworks (eg investment laws competition policy frameworks)

Requirements for regulation and de-regulation are context-specific multi-dimensional and will change over time In addition to laying the to foundations for private sector investment in general reform efforts for inclusive business are also likely to include

Removing binding constraints to the market entry of inclusive business through dissolution of government monopolies sector-wide de-regulation and

Promoting and regulating inclusive business growth through new regulations such as relating to price quality and safety standards

New statutory forms for inclusive business in corporate law voluntary accreditation

1 example of a voluntary inclusive business accreditation scheme (but not evidence on results)

Numerous examples of other legal forms such as social enterprises and BCorp (but only limited evidence on results)

As an alternative to accreditation using more established tools to direct government support to business with the potential to contribute to inclusive growth for example by revising national Investment Codes to include tax incentives for investments in sectors or activities of relevance to the poor Note that while such mechanisms for targeting support are more common no evidence on their effectiveness was identified within the scope of this paper

Special legal forms or voluntary accreditation schemes for inclusive business represent only an exploratory tool There are theoretical arguments for and against them

The DCED and Oxfam are currently undertaking additional research on existing legal forms and structures of business (rather than new legal forms for inclusive business) and how they may affect social impact a briefing note will be published separately including a more specific research agenda

71

2Wider government policies and Strategies

Proven tool(s)


practical examples identified in this paper on how targeted government

policies affect inclusive business

Findings on targeted policies and strategies as frequently proposed in the literature on inclusive business

Lessons on effective policy options for inclusive business emerging from the wider literature on

private sector development



Targeted government support to particular

businesses sectors or industries

Numerous examples of inclusive business barriers that canrsquot be solved through regulatory reform only

Numerous examples of targeted government interventions in various sectors

There are examples of effective as well as failed targeted government interventions

Targeted government interventions which are least prone to failure and that have proven successful in promoting inclusive growth many countries can be summarised as lsquohorizontal industrial policy interventions These include tax incentives direct financial support

technical assistance targeted at sub-sectors activities or technologies rather than at individual firms and

Time-bound targeted support for individual pioneer business based on a clear economic rationale and followed by activities to encourage sectoral development beyond the individual business partner

A substantial body of lessons learnt has been documented on industrial strategy which could be used to inform inclusive business programming Key principles of good practice are summarised in DCED (2014) Business Environment Reform and Industrial Policy Are they compatible

DCED Industrial Policy Synthesis Note Studwell (2013) provides a detailed account of successful

industrial policies in Asia

Focusing on criteria of social impact in allocating and managing targeted support

Policy proposals but no examples or evidence of results

Industrial policies focusing on criteria of social impact only represent an exploratory policy tool evidence on past successful industrial policy and economic theory do however highlight risks for inclusive growth arising from a diversion of capital from where it is most productive

Rather than focusing on social criteria in allocating and managing industrial support effective lsquoinclusive industrial policiesrsquo are likely to involve A focus on labour-intensive high-growth

industries and productivity-enhancing practices in agriculture

Promoting appropriate labour standards in these industries and

Strengthening backward linkages of larger firms with intermediaries or suppliers involving the poor

DIE (2011) Industrial Policy in Developing Countries Lessons from seven country cases

Research into industrial policies focusing social impact

could usefully explore how these policies are funded if they replace (to some extent) or complement other industrial policies what their impact on the poor have been and whether benefitting firms have increased productivity and turnover Such research may only be possible in several years as most policies are still at the planning stage

Introducing mandatory criteria in public or private sector operations that lead to benefits for the poor

6 examples of mandatory inclusion rules

Most of the examples as well as discussions in the literature show that mandatory inclusion rules have been ineffective

When opting for mandatory inclusion policies governments should be confident that there is market demand and that complementary measures to support associated business investments are in place

More effective approaches include Market-based solutions such as facilitating

access to information about local suppliers providing rewards for inclusion or improving supplier training and quality infrastructure are considered as more effective than mandatory inclusion

DIE (2016) Making Retail Modernisation in Developing Countries Inclusive

72

Introducing preferential government procurement schemes for inclusive business or pro-poor targets in government contracts

Some academic evidence on special procurement policies for SMEs not for inclusive business

1 reform example of pro-poor targets in government contracts

Preferential procurement rules for inclusive business and pro-poor targets in government contracts can only be considered as an exploratory policy tool It is unclear whether procurement preferences respond to any particular barriers faced by inclusive business the evidence base on the benefits of procurement-related measures is still limited

Lessons from preferential procurement policies for SMEs suggest the need to assess any barriers that inclusive

business may face in accessing government contracts and whether these could be addressed through other means (eg access to information)

the need to assess government capacity and incentives to run such schemes effectively and to avoid long-term economic inefficiencies

Further research would be needed to establish the effectiveness of preferential procurement schemes for inclusive business as well as pro-poor targets in government contracts

3Cross-cutting issues

Findings Key implications for inclusive business programme design and management

Examples of further reading

Political economy analysis

Various examples illustrate that business environment reform for inclusive business can be highly politically sensitive and there may be disincentives of inclusive business to engage in wider reforms of the enabling

environment

Inclusive business programmes could increasingly draw on good practice in political economy analysis and as a basis for effective reform design and management

DCED (2011) Introduction to the Political Economy of Business Environment Reform

GSDRC (2014) Topic Guide to Political Economy Analysis (2014)

DFID (2009) Political Economy Analysis How to Note

Acknowledgements

This paper was initiated by the Business Environment Working Group (BEWG) of the Donor Committee for Enterprise Development (DCED) It was written by Melina Heinrich-Fernandes Senior PSD Specialist at the DCED Secretariat Feedback is welcome and should be sent to the DCED Secretariat at CoordinatorEnterprise-Developmentorg The author is grateful for the support of a project Task Team which was made up of members from the Business Environment Working Group and other member agencies who provided advice documentation and contacts in particular Gayle Barnett (Global Affairs Canada) Mariella Regh Lisa Peterskovsky and Alexandra Oppermann (GIZ) and Siobhan Kelly Elena Ilie Marlo Rankin and Cora Dankers (FAO) Inputs were also received by Sahba Sobhani (UNDP) Fulvia Farinelli (UNCTAD) Iris Boutros (IDRC) Helen Bradbury (ALCP Georgia) and Pascale Bonzom and Tom Sales (UNDP AFIM) Thanks are also due to Jim Tanburn (DCED Secretariat) for comments and advice

The BEWG serves as a platform to share information and knowledge on donor-supported business environment reform in developing countries and to identify and support good practices and new approaches in this field For more publications by the BEWG visit httpwwwenterprise-developmentorgimplementing-psdbusiness-environment-reform About the DCED and current research on private sector engagement The DCED is the long-standing forum for donors foundations and UN agencies working in private sector development who share their practical experience and identify innovations and formulate guidance on effective practice Donors are now engaging directly with the private sector as partners in development This represents a major shift in mode of operation relative to the more traditional bilateral model DCED members are looking to the DCED to support them in making that shift not least by convening a group of donors around the topic of private sector engagement In addition to this scoping paper current research is also covering what we can learn from results measurement work in the Impact Investing Community how organisations are adapting to private sector engagement a mapping of partnership platforms that connect the public and private sector and how business structure and governance influences social impact Disclaimer The views in this paper are the authorrsquos or derived from secondary and tertiary sources and are not necessarily endorsed by the Donor Committee for Enterprise Development or any of its members

Front page photo credits (in order of images)

Duybox 123rfcom Paul Prescott 123rfcom DrikKatalyst

Public-domain-imagecom Russell Watkins Department for International Development flickrcom

Table of Contents

Executive Summary

Introduction

















business


growth



















further exploration




























Hgjhgjhg

Jhkjhkh

kjkhkjhkjh












include




business models


to core business

























employment













































reform



















































































































public procurement















































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment





Table of Contents

Executive Summary

Introduction

















business


growth



















further exploration




























Hgjhgjhg

Jhkjhkh

kjkhkjhkjh












include




business models


to core business

























employment













































reform



















































































































public procurement















































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment

















further exploration




























Hgjhgjhg

Jhkjhkh

kjkhkjhkjh












include




business models


to core business

























employment













































reform



















































































































public procurement















































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment






employment













































reform



















































































































public procurement















































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment




















































































public procurement















































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment














































Philippines



























agriculture and






poor in their work




































































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment




























































































reform process













businesses







responses




Next steps













































environment issues


(65)













is this so



















2
















Accelerator) andor

















































initiatives)

3






























































and targeted


business











4





















company




















returns and








picture



inclusive business


























5








inclusiversquo


































































inclusive28




6




























packages31








business as follows

Sfsd

Sdfs

sdfs







value chains

kjhkjhkj























bull Setting rules










Incl

usi

ve B

usi

nes

s

Def

init

ion

7
















































































8

Lkjlkjlkjljl

Sdfs

Sdfs

Sdfs

Sdf

Sdfs

Sfds














administration




administration



dispute-resolution
































or industries or











Sdfsf

Sd

fsdf

Kjhk

1

Fun

ctio

nal

are

as o

f b

usi

ne

ss e

nvi

ron

men

t re

form

2 W

ider

go

vern

men

t p

olic

ies

and

str

ateg

ies





9







































Functional areas of


Reform

Wider government



strategies)



Social

enterprise

Pure

CSR

Social

enterprise

Pure

CSR


interest

Ancillary

interest

10



effective practice















inclusive business




DCED


















questions











11


Fun

ctio

nal

are

as o

f B

usi

nes

s En

viro

nm

ent

Ref

orm


other business



[Summary 1]







[Summary 2]

Inte

rven

tio

nis

t s

trat

egie

s W

ider


Overview discussion



[Summary 3]








[Summary 4]

Cro

ss-c

utt

ing


inclusive business




[Summary 5]

12



13

In this section




Summary of findings












14






































































15



















inclusive business


16























17



































inclusive business









Business-specific

















Sectoral reform






18




Agriculture









19







reform


technologies







































certain contexts



20




















21














































banks












procedures61














22



loans64


















section 23)















businesses67








key tension areas




objectives and







finance to the poor








customers and








23





























money services71











24

















25


business by









their beneficiaries










business















Senegal







agribusiness





















such risks









26






Agriculture




27
































following cases









sectors see 23)


discussions78



section 24) or






poor section 24)






inclusive business





include





















business

28



























platforms















business

29


















30











inclusive business










identification or
















inclusive business






86 Koh et al (2014) p79 80















requirementsrdquo87










section)
















31


reduction89

















































business model)













mechanisms










32


33
























from the market





legislation




34





















Telecommunications


35



to consider include




of interest and


question



outlined below






















developmentrdquo99






below)
























markets


growth










Company (2014)








36























public services














consumers






















economic rationale






37





rural areas

































UNDP106


38










39









































discussion)
















forms






























40




























































1






and competition etc






investment


















42


43





practice (24) and


In this section


Summary of findings




44



















45


















business programmes





















growth119






















prematurely123










46






























































supported129















47













activities






an open competition







avoided













achieved










business










48











limited



business










49


productive growth










50



































and
































box below



51

































impact

















points out that














52


















































households and













53
























54






















government155














market siderdquo156














































55















































































56













for example by






incentives



















growth

57




58






In this section






59



























60
















and training)











include



and sectors

61










quality standards)






62



















63


























64















may failrdquo179




that


















management




















within them

65













































182 Koh et al (2014)





programme



business

























reform promotion

66



business































67

Concluding remarks



















68


Environment Reform

Proven tool(s)




inclusive business






































poor customers






69













Many examples of









Quality standards










70













71


Proven tool(s)





































72














environment





Documents

How to create an enabling environment for inclusive business?